Janice wants to get a mortgage for her new vacation condo. She pays $56,000 for the condo and has a 7% interest rate for a 7-year term. Under the terms of the mortgage, Janice pays interest only until the final payment when the principal is paid off. What type of loan is this?

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Business

Minnie

26 December, 11:30

Janice wants to get a mortgage for her new vacation condo. She pays $56,000 for the condo and has a 7% interest rate for a 7-year term. Under the terms of the mortgage, Janice pays interest only until the final payment when the principal is paid off. What type of loan is this?

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Giuliana Dyer · Answer 1

It is a Bullet Loan

Explanation:

A bullet loan is a type of loan in which the principal that is borrowed and sometimes with the interest are paid back at the end of the loan period by the borrower.

Essentially, the flexibility in the terms mean that a borrower is going to be saving a large payment until the end of the repayment period and with this borrowers can get access to loans they wouldn't have been able to afford if such flexibility doesn't exist.

However, this type of loan can be extremely risk for the borrower especially if things didn't go as planned.