Monthly payment, balloon and a full amortization schedule for an owner-financed note.
Work out the terms of an owner-financed sale. Enter the price, down payment, interest rate, amortization and balloon, and this seller financing calculator shows the monthly payment, the balloon due, the interest paid and a year-by-year amortization schedule.
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How seller financing works
In seller financing (owner financing), the seller acts as the bank. The buyer makes a down payment and signs a promissory note, secured by a mortgage or deed of trust, and pays the seller monthly. Most seller-financed notes amortize over a long term like 30 years, to keep the payment low, but come due early with a balloon payment, often after 3 to 10 years, when the buyer refinances or sells.
- For the buyer: easier qualifying, flexible terms, faster closing.
- For the seller: interest income, a sale that might not happen otherwise, and the option to spread the taxable gain over the years payments come in (an installment sale).
Worked example
The calculator opens with a $250,000 sale with 10% down ($25,000), so the seller finances $225,000 at 8%, amortized over 30 years with a balloon after 5 years.
- Monthly payment: $1,651.
- Over five years the buyer pays $99,058, of which $87,965 is interest; the loan balance only drops to $213,907.
- That $213,907 is the balloon due in year 5.
The schedule under the calculator shows each year's interest, principal and balance. Early payments are mostly interest, which is why a short balloon leaves most of the loan still owed.
Terms to agree in writing
- Price, down payment, interest rate, amortization period and balloon date.
- Late fees, what happens on default, and who pays taxes and insurance (often through an escrow or servicing company).
- Whether the seller still has a mortgage. Most mortgages have a due-on-sale clause, so a "wraparound" deal needs careful handling.
Read more in owner financing negotiations.
Frequently asked questions
What interest rate is typical for seller financing?
Seller-financed notes often carry a rate somewhat above bank mortgage rates, because the seller takes on more risk and the buyer gains flexibility. Too low a rate can create tax issues for the seller (the IRS has minimum "applicable federal rates"), so check with a CPA.
Are there rules about seller financing to someone who will live in the home?
Yes. Federal rules (Dodd-Frank and the SAFE Act) and state laws can limit how many owner-occupied homes a seller can finance and which terms, such as balloons, are allowed. Use a real estate attorney or a licensed loan originator for owner-occupant deals.
What happens if the buyer cannot pay the balloon?
The note is in default. The seller can usually foreclose, or the two sides can agree to extend the note. Many sellers build in an extension option at a higher rate to plan for this.
Related calculators and guides
- Capital gains tax calculator (installment sales spread the gain)
- Rental property calculator
- DSCR calculator
- Subject-to real estate deals