California Real Estate SalespersonFinancingEasy
A promissory note calls for the borrower to pay only accrued interest each month, with the entire principal balance due in a single lump-sum payment at maturity. This type of note is known as a:
- AStraight note
- BGraduated payment note
- CAdjustable-rate note
- DFully amortized note
Show answer & explanationAnswer & explanation
Correct answer: A. Straight note
A straight note (also called a term note or interest-only note) requires periodic interest-only payments with the full principal balloon payment due at maturity. A fully amortized note pays off both principal and interest over the term, unlike this structure.
Why the other options are wrong
- B. A graduated payment note has rising payments over time, not a flat interest-only structure.
- C. An adjustable-rate note varies the interest rate, which is not the defining feature described here.
- D. A fully amortized note pays down principal each period, unlike this interest-only structure.
Straight Note
A promissory note requiring interest-only payments during the term, with the entire principal due as a balloon payment at maturity.
- Also called a term note or interest-only note
- No principal reduction until maturity
- Common in short-term or seller-carryback financing
Memory trick: Straight as an arrow: interest only, principal at the end.