In seller financing (also called owner financing or a seller carry-back), the seller acts as the lender: the buyer pays a down payment and the seller carries a note for the rest. It lets a buyer close when a bank loan is slow, expensive or unavailable, and it can spread the seller’s proceeds out over time.
Two features drive the numbers: the interest rate and whether the note has a balloon. Many seller-carried notes amortize over 30 years but come due in 5 or 10, leaving a large balance to refinance or pay off at the balloon. This calculator shows that balance up front so neither side is surprised.
Formula
Payment = P × r × (1+r)ⁿ ÷ ((1+r)ⁿ − 1), where r = annual rate ÷ 12 and n = amortization months
The monthly payment is calculated on the amortization term, not the balloon term. If the balloon is shorter, the remaining principal balance at the balloon is still due in one lump sum even though the payment was sized as if the note ran the full amortization. An interest-only note pays none of the principal, so the entire loan balance is the balloon.
How to calculate it
- Enter the sale price and the down payment the seller will accept.
- Set the note interest rate and the amortization term the payment is based on.
- Set the balloon term — the year the remaining balance is due. Use the amortization term (or zero) for a fully amortizing note with no balloon.
- Compare the monthly payment, the balance due at the balloon and the total interest over the carried period.
Worked example
Assume a $300,000 property with 10% down ($30,000) and the seller carrying a $270,000 note at 6% amortized over 30 years with a 5-year balloon. Running those numbers through the RentScope seller-financing engine gives:
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FAQ
What is seller financing?
Seller financing (owner financing or a carry-back) is when the property seller lends the buyer part of the purchase price instead of requiring a bank loan. The buyer pays a down payment and signs a promissory note for the rest, secured by the property.
What is a balloon payment in seller financing?
A balloon is a lump-sum payoff due at a date before the note would fully amortize. A note might be amortized over 30 years but call the remaining balance due in 5. This calculator shows the balance due at the balloon so the buyer can plan to refinance, sell or pay it off.
Is seller financing risky for the seller?
Yes. The seller carries credit and default risk and may have to foreclose to collect. Sellers often reduce that risk with a larger down payment, a higher rate, a shorter balloon, a due-on-sale clause that limits the buyer’s ability to resell on terms, and proper documentation prepared by a real-estate attorney.
How is the interest rate on seller financing set?
It is negotiable. It is often near prevailing mortgage rates and sometimes higher, because the seller is taking on risk and the buyer may not qualify for a bank loan. The IRS also expects a minimum rate (the applicable federal rate) to avoid imputed interest.
Does the seller owe tax on a seller-financed sale?
A seller-financed sale is often an installment sale under IRC §453, which taxes the gain as principal payments are received instead of all at closing. Depreciation recapture and other rules still apply. This calculator does not model the seller’s taxes — consult a tax professional.
Does this calculator include taxes and insurance?
No. It models the note only — principal and interest between buyer and seller. Property taxes, insurance, escrow and closing costs are separate and are covered by the free RentScope property calculator.
Is this financial advice?
No. It is an educational estimate. Verify the note terms, required disclosures and tax treatment with a qualified attorney, lender and tax professional.
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