We have recently added new options to our seller finance calculator. These include “Balloon” and “Interest Only” options, which enable estimation of monthly and total interest income in a variety of complex scenarios.
The “Balloon” option allows a seller to control when the loan will be paid back. As an example, the parties may agree to a 30 year loan term. This would allow the seller to earn income over a period of time, while reaping tax benefits. It would also allow the buyer to have an affordable monthly payment. Win-Win.
But in some situations, sellers feel like 30 years is too long. What can the parties do so that it is still a win-win? They can agree to a balloon after e.g. 10 years, or whenever the seller thinks they will need the rest of their money. This way, the buyer has more affordable payments for 10 years, and can then refinance the loan to pay off the balloon when it comes due. The seller gets their income, tax benefits, and shorter loan period.
Our seller finance calculator can now estimate your monthly and total interest income if you need a balloon in your loan.
Sometimes, the buyer may need an even more affordable monthly payment. Or, the seller might want to maximize the amount of income over the life of the loan. In these cases, the parties might agree to an interest-only period. This is a period in which the buyer’s monthly payment to the seller is lower, because it includes no principal. The seller knows that after this period, the buyer will owe just as much as they did at the start. During this period, the seller is effectively earning the interest rate as income.
Our seller finance calculator can now estimate income if the parties agree to an interest-only period.
Balloon and Interest Only
In an even more tailored scenario, both the “Balloon” and “Interest Only” options are used. If the buyer needs affordability and the seller wants their money fast, the parties can agree to a short interest-only period followed by a balloon. It is even possible to make the balloon due at the end of the interest-only period, so that the seller gets their money almost as quickly as with a traditional sale, but the buyer has some time to adjust to the payment.
Our seller finance calculator can estimate these scenarios as well.