Model a seller-financed real estate deal.
Monthly payment
—
Balloon payoff
—
Total interest to balloon
—
Your breakdown
Updates live as you type| Item | Amount |
|---|
When the seller becomes the bank
In an owner-financed deal, also called a seller carry-back, there is no bank in the middle. The seller agrees to let the buyer pay the purchase price over time, with interest, the same way a lender would. A promissory note spells out the rate and term, and a deed of trust or mortgage secures the seller's position so they can foreclose if payments stop. These deals show up when a buyer cannot qualify for a conventional loan, when a property is hard to finance, or when a seller wants a steady income stream and is willing to wait for their cash. This calculator models the payment, the interest, and the balloon that almost every one of these notes carries.
The structural quirk that confuses people is the split between the amortization schedule and the term. A note can be amortized over 30 years, so the monthly payment is low and affordable, while the actual term is only 5 years. At the end of that 5 years the entire remaining balance comes due in one lump, the balloon. The buyer is expected to refinance into a traditional mortgage or sell by then. Low payment now, large bill later.
A $350,000 home on a 5-year balloon
Use the defaults: a $350,000 sale price, $50,000 down, 7% interest, a 30-year amortization, and a 5-year balloon. The loan is $300,000. The payment is calculated as if it will run the full 30 years, but the calculator then amortizes only 60 months to find what is still owed when the balloon hits.
Look at what 60 payments of roughly $1,996 actually accomplish. The buyer pays in about $119,755 over five years, yet the loan only drops from $300,000 to $282,395. The reason is brutal and important: in the early years of any long amortization, almost every dollar of the payment is interest. Here $102,149 of those payments went to interest and barely $17,605 chipped at principal. The buyer who cannot refinance at year 5 owes nearly the full original balance.
The tax and rate fine print on both sides
A seller carry-back is an installment sale, reported to the IRS on Form 6252, which lets the seller spread their capital gain across the years they receive principal rather than paying it all in the year of sale. That deferral is a genuine draw for sellers sitting on a large gain. The interest the seller collects, though, is ordinary income each year. There is also a floor on the rate: the IRS publishes Applicable Federal Rates each month, and a seller who charges below the AFR can have interest imputed to them anyway, so a zero-interest or sweetheart rate does not avoid tax the way buyers sometimes hope.
This calculator is for a buyer or seller sketching out a private deal before lawyers draft the note. The most common mistake is the buyer treating the low monthly payment as the whole story and forgetting the balloon entirely. If refinancing dries up, if the buyer's credit has not recovered, or if the property has not appraised high enough by year 5, that balloon can force a sale or a foreclosure. A practical tip: a buyer should treat the balloon date as a hard deadline to either qualify for a conventional mortgage or have an exit, and a seller should weigh the risk that they may have to take the property back if the buyer cannot pay the lump.
What happens if the buyer cannot pay the balloon?
The note is in default, and the seller can pursue foreclosure under the deed of trust or mortgage, taking the property back. Some notes include an extension or refinance clause to soften this, but absent that, the buyer's options are to refinance into a conventional loan, sell the property to pay the balloon, or lose it. This is why the balloon date matters as much as the monthly payment, and why buyers should not enter a carry-back without a credible plan to be mortgage-ready by then.
Can the monthly payment and the balloon term be set independently?
Yes, and that flexibility is the whole appeal of owner financing. The amortization period sets the size of the monthly payment, while the balloon term sets when the remaining balance is due. A longer amortization with a short balloon produces a low, affordable payment but a large lump at the end. Set the balloon term equal to or longer than the amortization in the calculator and the note fully pays off with no balloon at all, just a conventional self-amortizing loan held by the seller.