EstateGuru bullet and full bullet explained
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Many new investors are initially confused by the terms "bullet" and "full bullet" on the EstateGuru platform. After a short search on Google, they then mostly come across the term "final maturity", which usually even increases the confusion.
In this short article we want to clarify what is behind the terms and what you should know as an investor.
Different loan types for real estate loans
When financing real estate projects, there are different types of loans. The loan types are differentiated by different repayment and interest payments.
Real estate loans are issued as the following loan types:
Full repayment loan
EstateGuru bullet - bullet loan
With the bullet loan, no repayments are made during the terms. This loan type is also popularly referred to as a "bullet" or even a "balloon loan".
Advantages and disadvantages for borrowers
The biggest advantage of a loan structured as a "bullet" is flexibility. Since no repayment has to be made, the original loan amount is fully available to the borrower. The disadvantage is that the interest payable is much higher because the loan amount is not reduced over the life of the loan. This can drastically increase the complete interest charge over the entire loan period.
Advantages and disadvantages from the investor's perspective
For investors, the advantages and disadvantages are basically back-to-front. Since they do not receive ongoing repayments, the loan default risk can hit in full at the end of the term. On the other hand, investors receive higher than average interest rates on bullet real estate loans because the loans are not repaid during the term.
Bullet vs full bullet
However, on EstateGuru not only bullet real estate loans are brokered, but also full bullet loans. The main difference between a bullet and a full bullet is how the interest is paid.
In a full bullet, the loan amount and interest is paid at the end of the loan term. This means that during the loan term, investors do not receive any interest either.
We would like to show you this with two examples.
Example: Repayment plan "bullet" with an 11-month term
With a bullet, you receive regular interest payments. In this example, interest would be paid every 3 months.
Example: Repayment plan "full bullet" with an 11-month term
The situation is different with a full bullet, the interest payment is made at the end. During the term, you will not receive any interest.
Evaluation from an investor's point of view
With a full bullet, the risk for investors is greater than with a bullet because whether they get their interest and money back is not decided until the end of the loan term.
If we were to compare two nearly identical real estate loans, investors can expect higher interest rates from the loan that was issued as a full bullet.
Summary and conclusion
As you can see, you don't need to be confused by the terms bullet and full bullet.
Both terms represent typical bullet loans that pay no principal during the term. A full bullet is an extreme version of a bullet loan, as no interest is paid in addition to the repayments.
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Originally published 16 May 2021, last updated on 03 September 2021