Certified Apartment Portfolio Supervisor (CAPS) Practice Exam - Module 2

What is the primary use of a Bullet mortgage?

1. To secure long-term financing for a primary residence

2. For purchasing land without any immediate development

3. For interim financing during construction or rehabilitation

4. For permanent financing on commercial properties

The correct answer is: For interim financing during construction or rehabilitation

The primary use of a Bullet mortgage is as an interim financing option during construction or rehabilitation projects. This type of mortgage typically involves a loan that is predicated on a shorter-term need, often with the expectation of paying off the principal amount either in a lump sum at the end of a specified term or upon the completion of the project. In construction scenarios, builders or developers may require immediate funding to complete the build or renovation while they are awaiting long-term financing solutions to stabilize the property. Bullet mortgages are appealing for this purpose as they can provide quick access to funds to facilitate construction timelines without the immediate burden of regular principal payments. Long-term financing for a primary residence involves different types of loans that offer stability and are designed for extended durations, unlike the short-lived nature of Bullet mortgages. Similarly, while purchasing land without immediate development might require financing, it generally involves different mortgage structures that focus on land acquisition rather than temporary project funding. Permanent financing on commercial properties is also built around long-term loans with regular payments, which is not the intention behind Bullet mortgages.