Calculate seller financing payments, total interest earned, and cash flow for both buyer and seller. Model custom terms with optional balloon payment.
Seller financing — also called owner financing or a seller carry-back — is an arrangement where the property seller acts as the lender. Instead of the buyer obtaining a bank mortgage, the seller extends credit directly. The buyer makes monthly payments to the seller, who earns interest on the financed amount.
This structure benefits both parties: buyers who cannot qualify for traditional financing gain access to homeownership, while sellers earn a higher return on their equity than they would from investing the sale proceeds elsewhere. Terms are fully negotiable — rate, term, down payment, and balloon provisions.
This Seller Financing Calculator shows the deal from both perspectives. Buyers see their monthly payment, total cost, and balloon obligation. Sellers see their monthly cash flow, total interest earned, and return on the financed amount. Because seller-financed deals lack the standardized disclosure requirements of institutional loans, having an independent calculation of payments, interest, and balloon obligations is especially important for both parties to negotiate fairly and avoid costly misunderstandings.
Seller financing deals live or die on the terms. A rate that seems fair to the buyer may not compensate the seller adequately for the risk. This calculator lets both parties model different scenarios — adjusting rate, term, down payment, and balloon — until they find terms that work for everyone. Seeing the deal from both sides prevents misaligned expectations.
Monthly Payment = standard amortization on financed amount. Balloon = remaining balance at balloon term. Seller Interest Earned = total payments received + balloon − financed amount. Seller Effective Yield = (Interest Earned ÷ Financed Amount) ÷ years × 100.
Result: Buyer: $1,398/mo with $186,431 balloon — Seller earns $103,892 interest
The $200,000 financed amount at 7.5 % over 30-year amortization produces a $1,398 monthly payment. After 7 years, the balloon balance is $186,431. The seller receives 84 monthly payments ($117,461) plus the balloon ($186,431), totaling $303,892 — earning $103,892 in interest on the $200,000 note.
The buyer and seller negotiate all terms: purchase price, down payment, interest rate, payment schedule, and any balloon provision. At closing, the buyer signs a promissory note and the seller records a mortgage or deed of trust against the property. The buyer takes possession and makes monthly payments to the seller (or a servicing company).
From the buyer's perspective, seller financing provides access to property when traditional financing is unavailable, with potentially less paperwork and faster closing. The trade-off is usually a higher interest rate and shorter term with a balloon. From the seller's perspective, it generates ongoing income, may command a higher sale price, and offers favorable installment-sale tax treatment.
The most common structure combines a moderate down payment (10–20 %), an interest rate above market, amortization over 20–30 years, and a balloon in 5–7 years. The balloon forces the buyer to refinance — giving the seller an exit while keeping monthly payments manageable for the buyer during the term.
Seller financing is when the property seller extends credit to the buyer instead of the buyer obtaining a bank mortgage. The seller receives monthly payments with interest, essentially acting as the bank. The property typically serves as collateral secured by a mortgage or deed of trust.
Sellers benefit from a higher sale price (buyers pay a premium for flexible terms), interest income that often exceeds conservative investments, tax benefits from installment sale treatment (spreading capital gains over time), and a faster sale in difficult markets. In slow markets, offering financing can attract a wider pool of buyers who might otherwise be unable to secure a traditional mortgage.
Seller financing rates typically run 1–3 % above conventional mortgage rates, reflecting the higher risk and convenience. In a market with 7 % conventional rates, seller financing might range from 8–10 %. The rate is fully negotiable between the parties.
Seller financing carries risks. The buyer should verify the seller owns the property free and clear (or that the existing mortgage allows a sale), record the agreement, and ensure the contract includes standard protections. Working with a real estate attorney is essential.
Seller financing may qualify as an installment sale under IRS rules, allowing the seller to spread capital gains tax over the payment period rather than paying it all in the year of sale. Interest income is taxed as ordinary income. Consult a tax professional for your situation.
Yes, sellers can sell the promissory note to a note investor, but typically at a discount (10–30 % below face value). This converts the future payment stream into immediate cash. The discount reflects the investor's risk and desired return.