HUD 232 Loans and Amortization
When a loan is amortizing, each payment a borrower makes pays off both a portion of the interest and the principal. If a loan is fully amortizing, the entire principal will have been paid off by the end of the loan term.
In general, all HUD 232 loans are fully amortizing. Because of this, borrowers will not have to face a balloon payment (a payment of the remaining principal due at the end of an interest-only or partially amortizing loan) or be forced to refinance their loan at the end of the loan's term.
HUD 232 Construction Loans are Interest-Only During Construction
While it's true that HUD 232 loans are generally fully amortizing, HUD 232 construction loans are actually interest-only during the construction period. This is great for borrowers, as they don’t start making payments on the principal until the facility is complete and they can begin bringing in revenue.
However, when the construction period is finished, the HUD 232 loan will convert to a fully amortizing, fixed-rate loan. In this case, the entire principal will still be paid off by the end of the loan term (unless the borrower defaults or decides to refinance with a HUD 223(a)(7) loan.