Bullet (Balloon) Loan — Complete Guide
Comprehensive guide to bullet (balloon) loans: interest-only payments with no principal repayment, when to use, risks, bridge loans, and comparison to other mortgage methods.
What Is a Bullet or Balloon Loan?
A bullet loan (also called a balloon loan) is a mortgage structure where the borrower pays only interest during the loan term and repays the entire principal as a single lump sum at the end.
In Israel, this type is less common for standard home purchases but plays an important role in bridge loans, real estate investments, and short-term financing.
Difference Between Full Bullet and Partial Balloon
A full bullet loan means zero principal repayment until the final payment. A partial balloon loan involves some principal repayment during the term, but a large remaining balance (the balloon) is due at maturity.
How Monthly Payments Work
Since you are only paying interest, monthly payments are significantly lower than Spitzer or Keren Shava. On a 1,000,000 NIS loan at 5%, interest-only payments are approximately 4,167 NIS vs. 5,846 NIS under Spitzer.
However, at the end of the term, you must repay the full 1,000,000 NIS.
Common Use Cases in Israel
Bridge loans are the most common application. When buying a new apartment before selling your current one, a bridge loan covers the gap. You pay interest only for 12-24 months, then repay from the sale proceeds.
Real estate investors also use bullet structures for property flipping.
Risks and Considerations
The primary risk is that you must have a plan to repay the full principal at maturity. If your property does not sell in time, you face a serious financial obligation.
Banks typically require strong collateral or evidence of repayment ability before approving bullet loans.
Interest Costs Over Time
Total interest on a bullet loan exceeds Spitzer and Keren Shava for the same term, because the principal never decreases. For short-term loans (1-3 years), this additional cost is manageable.
When Does a Bullet Loan Make Sense?
A bullet structure makes sense when you have a defined exit strategy — selling a property, receiving an inheritance, or liquidating investments — within a known timeframe.
It is not suitable for borrowers who need gradual debt reduction or lack a concrete repayment plan.
Frequently Asked Questions
+−What is the difference between a bullet loan and a balloon loan?
A full bullet means zero principal repayment until the final payment. A partial balloon involves some repayment during the term, with a large remaining balance due at maturity.
+−When are bullet loans commonly used in Israel?
The most common use is bridge loans when buying a new apartment before selling the current one. Real estate investors also use them for property flipping.
+−Are monthly payments lower on a bullet loan?
Yes, significantly. On a 1,000,000 NIS loan at 5%, interest-only payments are approximately 4,167 NIS vs. 5,846 NIS under Spitzer.
+−What happens if I cannot repay the principal at maturity?
This is the primary risk. Banks may allow refinancing into a standard mortgage, but this is not guaranteed.
+−How long do bridge loans typically last?
Bridge loans in Israel typically last 12-24 months.
+−Is total interest higher on a bullet loan?
Yes, because the principal never decreases during the loan term.
+−What collateral do banks require?
Banks typically require strong collateral, such as equity in your existing property, and evidence of a clear repayment plan.