Bullet Loan Law and Legal Definition

A bullet loan is any loan that requires a balloon payment at the end of the term and anticipates that the loan will be refinanced in order to meet the balloon payment obligation. Bullet loans are riskier because the homeowner's equity in the property does not increase over time. A bullet loan can be a mortgage, bond, note or any other type of credit. The payment that is due at the end of the loan is referred to as the bullet payment or balloon payment. Bullet loans are common. Bullet loan is a generic and unofficial term. Many types of publicly-traded bonds and notes constitute bullet loans. Moreover, short-term bonds or notes which pay no interest are a form of bullet loan. Bullet loans should be contrasted with amortizing loans, where the amount of principal is paid down over the life of the loan.