Owner-carry notes
Seller Financing Calculator
When the seller carries the paper, the terms are negotiated rather than underwritten — which usually means a below-market rate paired with a balloon. This computes the payment, the balance due at the balloon, and whether the property’s income covers the note. The example runs at $1,354 a month with $211,826 due in year seven.
The note
Monthly payment to the seller
$1,354.18
$238,500 carried at 5.500% on a 30-year amortisation.
Balloon due, year 7
$211,826
Payable in full on that date.
Versus a bank loan
+$273
Bank at 7.25% would be $1,626.99.
DSCR on this note
1.19
Monthly cash flow
+$255
On $1,609 of monthly NOI.
Interest paid to the balloon
$87,077
Principal paid to the balloon
$26,674
11.2% of the note.
Note amount
Price − down payment
= $265,000 − $26,500 (10.0%)
= $238,500
Monthly payment
M = P · i(1+i)^n ÷ ((1+i)^n − 1), i = rate ÷ 12
P = $238,500, i = 0.4583%, n = 360
= $1,354.18 a month
What the seller receives
Down payment + payments to the balloon + balloon
= $26,500 + $113,751 + $211,826
= $352,077 against a $265,000 price
| Buyer's side | Amount |
|---|---|
| Purchase price | $265,000 |
| Down payment | $26,500 |
| Seller note | $238,500 |
| Monthly payment | $1,354.18 |
| Annual debt service | $16,250 |
| Monthly cash flow | +$255 |
| Balance due at year 7 | $211,826 |
| Balloon balance by year | Amount |
|---|---|
| If the balloon is at year 3 | $228,308 |
| If the balloon is at year 5 | $220,519 |
| If the balloon is at year 7 | $211,826 |
| If the balloon is at year 10 | $196,860 |
What the balloon actually costs you
A long amortisation with a short balloon is the standard structure, and it is deliberately front-loaded with interest. Over seven years on the loaded example you pay $113,751 and reduce the balance by $26,674 — the other $87,077 is interest.
| Balloon at | Balance due | Principal repaid | Interest paid |
|---|---|---|---|
| Year 3 | $228,308 | $10,192 | $38,558 |
| Year 5 | $220,519 | $17,981 | $63,269 |
| Year 7 | $211,826 | $26,674 | $87,077 |
| Year 10 | $196,860 | $41,640 | $120,861 |
Seven years of payments retire 11% of the note. That is not a flaw in the structure — it is what a 30-year amortisation does — but it means the refinance at the balloon is for almost the original amount, and the property has to support it then, at whatever rates exist then.
Run the exit before you sign the entry
The balloon is a refinance you have committed to in advance. Three things have to be true on that date, and none of them is under your control:
- The property has to appraise. A $211,826 refinance at 75% LTV needs an appraisal of at least $282,435.
- The income has to cover it. At a 1.25 DSCR floor, a $211,826 loan at 7.25% over 30 years costs $17,338 a year, so the property needs $21,673 of NOI.
- You have to be financeable. Credit, reserves and the number of financed properties you hold all matter to conventional lenders in ways they did not matter to the seller.
Negotiate the extension up front
Common questions about seller financing
- How do you calculate a seller financing payment?
- The same way as any amortising loan: the note amount is price less down payment, and the payment is computed from the note rate and the amortisation schedule. On the example here, $265,000 less 10% down is a $238,500 note; at 5.5% on a 30-year amortisation that is $1,354.18 a month.
- What is a balloon payment in seller financing?
- The full remaining balance, due on a fixed date regardless of the amortisation schedule. On a 30-year amortisation with a seven-year balloon, the payment is sized as if you had thirty years, but $211,826 comes due at year seven. Paying that requires a refinance or a sale.
- Why would a seller carry the note?
- Three reasons that come up repeatedly: it spreads the capital gain across years under the instalment sale rules rather than realising it all at once, it produces an interest yield better than a bond on money they were going to sit on, and it widens the buyer pool for a property that will not appraise or will not qualify conventionally.
- Is seller financing cheaper than a bank loan?
- Often on rate, always on friction. The example note at 5.5% costs $1,354 a month against $1,627 for a bank loan at 7.25% — $273 a month, or $22,916 over the seven years to the balloon. There is also no appraisal requirement, no DSCR test and no origination fee, which for an unconventional property can matter more than the rate.
- What is the biggest risk with seller financing?
- The balloon with no exit. If the property will not appraise or will not clear a lender's DSCR test on the balloon date, the balance is still due, and the only options are a forced sale or an extension the seller has no obligation to grant. Model the refinance you will need at the balloon before you sign the note, not after.
The NOI that has to service the note comes from the NOI calculator, and the coverage test is on the DSCR calculator. For an owner-occupier working out payoff or refinance maths on their own mortgage, PayoffCalculator.io is the right tool.
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