1. What is Interest-Only Seller Financing?

Interest-only seller financing is a promissory note arrangement where the borrower pays only the interest each month, with the principal due as a balloon payment at the end of the term. This is common in private real estate transactions and business sales.

2. How Does the Calculator Work?

The calculator uses the interest-only payment formula:

Where:

• \( Principal \) — Loan amount in USD
• \( Rate \) — Annual interest rate in decimal form (e.g., 0.08 for 8%)

Explanation: The formula converts the annual rate to a monthly rate by dividing by 12, then multiplies by the principal to get the monthly interest payment.

3. Importance of Payment Calculation

Details: Accurate payment calculation is crucial for both buyers and sellers to understand cash flow requirements and ensure the promissory note terms are properly structured.

4. Using the Calculator

Tips: Enter principal in USD, annual rate as a decimal (e.g., 0.1 for 10%). All values must be valid (principal > 0, rate between 0-1).

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between interest-only and amortizing loans?
A: Interest-only requires only interest payments during the term, while amortizing loans pay both principal and interest, reducing the balance over time.

Q2: When are interest-only notes typically used?
A: Often used in seller financing for short-term periods (1-5 years) before refinancing or sale of the property.

Q3: How is the rate determined in seller financing?
A: Negotiated between parties, often based on market rates but may be higher to compensate seller for risk.

Q4: What happens at the end of an interest-only term?
A: Typically requires full repayment of principal (balloon payment) or refinancing into a new loan.

Q5: Are there tax implications for interest-only payments?
A: Interest may be tax-deductible for the buyer (if for business/investment) and taxable income for the seller.