Seller Financing Calculator: Payment, Balloon, and the Seller's Yield

Introduction

The defining feature of owner-carry paper is that the amortisation schedule and the term are two different numbers — and the gap between them is the whole deal.

TL;DR: A note written at 30-year amortisation with a 5-year balloon has the payment of a long loan and the refinance risk of a short one. At 7%, five years of payments retires about 6% of the principal, so 94% comes due on the balloon date. The payment is the easy part of a seller-financed deal. The balloon is the part that has to be solved before you sign.

Why the balloon is the hero number

An amortising loan repays principal slowly at first, because early payments are mostly interest. That is true of any mortgage. What makes it decisive in seller financing is that the note usually does not run to term.

On a $315,000 note at 7% over 30 years, the monthly payment is $2,096. Over five years you pay $125,742 — and only $18,485 of that touches principal. The rest is interest. On the balloon date you owe $296,515.

balloon = note amount − principal repaid before the balloon date

The lever is the balloon date, not the payment. Push it from five years to ten and the balance due falls to $270,309; push it to fifteen and it falls to $233,159. Every additional year is principal retired before you have to refinance — and none of it required a better interest rate.

A worked example

A $350,000 property with 10% down, carried at 7% on a 30-year schedule with a 5-year balloon.

Line	Amount
Down payment	$35,000
Note amount	$315,000
Monthly payment	$2,096
Interest paid before balloon	$107,257
Principal paid before balloon	$18,485
Balloon due at year 5	$296,515
Principal still owed at balloon	94.1%
Seller's annual yield on the note	6.81%

The buyer will pay $125,742 over five years and reduce the debt by $18,485. If the property has not appreciated and rents have not risen, refinancing $296,515 in year five may be no easier than financing $315,000 was in year one.

That is the risk the structure creates, and it is why the balloon date deserves more negotiating attention than the interest rate does.

What each side is actually optimising

Seller financing is a negotiation between two people with different objectives, and the terms trade against each other in ways that are not obvious.

The buyer wants a long amortisation (low payment), a long balloon (time to refinance or season the property), and a low rate. Of those, the balloon date is worth the most and is often the cheapest to obtain, because sellers think about it least.

The seller wants a meaningful down payment, a rate above what they would earn elsewhere, and — frequently — the deal to end within a defined period so their capital comes back. Many sellers also care about spreading the gain across tax years, which an installment sale does and a cash sale does not.

The seller's yield output exists so the buyer can see what they are offering from the other side of the table. A 7% note yielding a seller nearly 6.8% a year on their money is a genuinely competitive return against most passive alternatives, and saying so is often more persuasive than arguing about price.

Where this calculator is deliberately simple

It models a straightforward amortising note with a balloon. It does not handle interest-only periods, step-up rates, or payments that change during the term — all of which appear in owner-carry deals and all of which need the actual note language rather than a calculator.

It computes the seller's yield as simple interest on the note, not an IRR, because the timing of the balloon is the entire story and the balloon date is already an input you can see. For a timing-weighted return use the IRR calculator.

It also says nothing about whether the seller can legally carry. If there is an existing mortgage on the property, a due-on-sale clause may be triggered — the subject-to and wraparound structures exist to address exactly this, and both carry risks a payment schedule does not capture. Read Subject-To Real Estate and Wraparound Mortgage Explained before assuming a seller with a mortgage can simply carry paper.

FAQ

What is a typical seller financing structure?

Ten to twenty percent down, a rate one to three points above prevailing mortgage rates, amortised over twenty or thirty years, with a balloon at three to seven years. Everything in that sentence is negotiable, which is the main attraction of the structure.

Why is the balloon so much larger than I expected?

Because early payments on a long amortisation are mostly interest. At 7% over 30 years, the first year's payments run about 87% interest — $21,949 of interest against $3,200 of principal. Five years in, you have retired roughly 6% of the note. This surprises nearly everyone the first time they see it, and it is arithmetic rather than a bad deal.

What happens if I cannot refinance the balloon?

You negotiate an extension, sell, or lose the property. Sellers will often extend rather than foreclose, because taking back a property is expensive and they wanted cash rather than a building — but that is a hope, not a plan. Build the refinance path before closing, and prefer a longer balloon over a lower rate if you must choose.

Is seller financing cheaper than a bank loan?

Rarely on rate. It is usually more expensive per point of interest, and cheaper on everything else — no origination points, no appraisal requirement, far fewer fees, no DSCR test, and no minimum property condition. On a property a bank will not lend against, it is not more expensive than the alternative; it is the only alternative.

How does the seller get taxed?

Usually as an installment sale, which spreads the capital gain across the years payments are received rather than recognising it all at closing. That deferral is often the seller's real motivation, and it is worth understanding before you negotiate — a seller focused on tax treatment may accept a lower price for a longer term.

Can the seller carry if they still have a mortgage?

Only carefully. Most mortgages contain a due-on-sale clause allowing the lender to call the loan when title transfers. Wraparound and subject-to structures work around this and are used routinely, but they carry real risk and belong in front of an attorney rather than a calculator.

Conclusion

Negotiate the balloon date first, the rate second, and the down payment third. A note two points more expensive with ten years before the balloon is usually a better deal than a cheap note with three — because the rate costs you monthly, and the balloon can cost you the property.