How to Calculate Interest Only Owner Finance Payments

Calculating the payment needed to cover just the interest on an owner-financed contract or promissory note is simple. Just follow three easy steps and avoid two common pitfalls.

Follow 3 Easy Steps

Step 1: Obtain the current principal balance and interest rate from the land contract or promissory note

Step 2: Times the balance by the interest rate

Step 3: Divide by 12

In fact it is so simple you don’t need the best financial calculator, any standard calculator will suffice.

Here are the steps in action:

Step 1: A seller-financed note has a balance of 100,000 at 8% interest

Step 2: $100,000 x 8% (or .08) = $8,000 (interest for the year)

Step 3: $8,000 divided by 12 = $666.67 (monthly interest only payment)

What It All Means

If the buyer pays just the interest every month then the balance stays the same and does not decrease.

If the buyer makes a payment that is more than the interest only portion then there is a principal reduction and the balance goes down.

Unfortunately there are two common mistakes people unknowingly make with interest only payments. Read more

Does Seller Financing Qualify for the $8,000 First Time Homebuyer Tax Credit?

Great news!  The IRS has specifically answered “YES” to this question.

It seemed pretty straight forward that owner financed transactions involving a deed to the buyer and a note and mortgage (or deed of trust) back to the seller would let qualified buyers take the First Time $8,000 Homebuyer Credit.  However, some wondered if Read more

Cashing in on Experience – Using Master Broker Services

Whether you are new to the industry or a seasoned veteran, a helping hand is always appreciated.  This is especially true when entering into the owner financed mortgage industry as a new note broker. 

Why spend years recreating the wheel to gain the knowledge you need to make money today? Take advantage of the knowledge, experience and volume pricing offered by a Master Broker to help you reach your goals for financial success.  Essentially, a master broker offers a mentor program to the broker finding the transaction. Read more

Should I Owner Finance a Second Mortgage?

More and more sellers are being asked to carry back a second mortgage for the buyer – especially with the banks still keeping a pretty tight reign on lending.

While seller financing can be a viable alternative to bank loans when it is the buyer’s primary obligation or first lien, a second lien has considerably more risk. Read more

Real Deal #147 – Estate Note in Arizona

Welcome to Real Deals!  It’s always easier to learn from real life so here we share information from actual owner financed transactions. A seller-financed note is an asset. The seller can elect to hold the asset collecting payments, sell the note, or leave to heirs as part of their estate.  Many heirs would prefer cash now rather than payments over time.  A large number of notes are purchased through estate distribution similar to this Arizona note. Read more

What the Federal Bailout Means to Seller Financing

Worried about the effect of toxic mortgages on the overall economy, the Federal government is pulling out the checkbook to help bailout failing mortgage companies.  It started with Fannie Mae and Freddie Mac and now includes a proposal for another $700 billion infusion of funds.  Why is the government involved and what does it mean for seller financing? Read more

What is Note Seasoning?

“Seasoning” is the term used to describe the amount of time the payer has been making payments. The general rule of thumb is the longer the better, with 12 months or more optimal. That is not to say that a note won’t be sold unless there is a lot of seasoning. It just means the investor will be looking at other variables of the deal that minimize risk. Read more