Bullet repayment loan

A 'bullet repayment loan' is one where the borrower repays the capital in one chunk at the end of the term of the loan.

In a typical loan arrangement, the borrower commits to repay interest and principal on a regular basis so that the loan is cleared over its term. This is the structure of a repayment mortgage. Each monthly repayment consists of a bit of interest and a bit of capital. The split varies in the early years the majority of each payment is interest to reflect the large amount of capital outstanding. In the latter years, most of every repayment is capital.

However, there is another type of mortgage where the repayment pattern is different the interest-only mortgage. Here, the borrower just pays off interest charges on a monthly basis. As such, the repayment to the lender is smaller. Then, at the end of the term of the loan say 25 years the capital is repaid in one chunk.

This is also known as a 'bullet repayment loan'. The lender will normally expect the borrower to have a savings plan in place from the start of the loan that will fund the final repayment of capital.

See Tim Bennett's video tutorial: Beginner's guide to mortgages.

Most Popular

Ray Dalio’s shrewd $10bn bet on the collapse of European stocks
European stockmarkets

Ray Dalio’s shrewd $10bn bet on the collapse of European stocks

Ray Dalio’s Bridgewater hedge fund is putting its money on a collapse in European stocks. It’s likely to pay off, says Matthew Lynn.
3 Jul 2022
Persimmon yields 12.3%, but can you trust the company to deliver?
Share tips

Persimmon yields 12.3%, but can you trust the company to deliver?

With a dividend yield of 12.3%, Persimmon looks like a highly attractive prospect for income investors. But that sort of yield can also indicate compa…
1 Jul 2022
The income investor’s dilemma
Income investing

The income investor’s dilemma

Pay attention to dividend growth as well as initial yield when picking income trusts, says Max King.
4 Jul 2022