Seller Financing Calculator

How seller financing works

• The seller acts as the bank. Instead of the buyer getting a mortgage from a lender, the seller carries a promissory note secured by a deed of trust (or mortgage). The buyer makes monthly payments directly to the seller.
• Monthly payment is computed from the note amount (price minus down payment), interest rate and amortization term using the standard fully-amortizing payment formula — the same math any lender uses.
• Balloon payment: most seller-financed deals use a short balloon period (3–10 years) with a longer amortization term. The buyer makes smaller payments based on a 30-year schedule, then pays the entire remaining balance as a lump sum when the balloon comes due. This lets the buyer refinance with a conventional lender once they have an ownership record.
• Seller's interest income = total payments received minus the note amount. This is ordinary income to the seller, reported on Schedule B. If the seller reports on the installment method, only the interest portion received in each year is taxable that year.
• The note is an asset. The seller can hold it to maturity, sell it to a note investor (typically at a discount of 10–30%), or use it as collateral for another loan.

Worked example

A seller accepts $300,000 for a rental property with $30,000 down (10%). The $270,000 note is at 7% interest, amortized over 30 years with a 5-year balloon. Monthly payment: $1,797. After 60 payments the buyer has paid $107,838 in total; $15,921 has reduced the principal, leaving a balloon of about $254,079. The seller's interest income over the 5 years: approximately $91,917. Total received by the seller: $30,000 down + $107,838 in payments + $254,079 balloon = $391,917.

Frequently asked questions

What interest rate should I charge?

Seller financing rates are typically 1–3 percentage points above the prevailing 30-year fixed mortgage rate, compensating the seller for the credit risk and deferred tax benefit. As of 2026, conventional 30-year rates are around 7%, making seller carry rates of 7–9% common.

Does the seller need to pay off their own mortgage first?

If the seller has an existing mortgage with a due-on-sale clause (virtually all modern mortgages do), they must pay it off at closing. Seller financing works best on free-and-clear properties, or when the existing lender consents. Wrapping an existing mortgage without lender consent is legally risky.

What happens if the buyer defaults?

The seller's recourse is foreclosure — the same process any lender would use. The timeline and cost vary by state. Sellers should require a down payment large enough to protect them from a quick default, consult a real estate attorney, and consider title insurance and a professional loan servicer.

Can the seller sell the note?

Yes. Note buyers (investors) purchase seller-financed notes at a discount — typically 70–90% of the remaining balance, depending on seasoning, LTV, buyer creditworthiness and payment history. The longer the buyer has paid on time, the better the price. A mortgage note broker can shop the note to multiple investors.

Formulas last reviewed October 3, 2026. Results are estimates for educational use; not financial advice. Methodology →