Seller-Finance Amortization Schedules: Structuring Term, Rate, and Balloon So the Deal Pencils

Why the Rate Decides Whether the Deal Pencils for Both Sides

A seller-financed note is a private loan with two parties who both need the terms to work: the seller needs a return that beats just taking cash and investing it elsewhere, and the buyer needs a payment they can actually afford, ideally lower than what a bank would charge for the same risk.

Getting the rate, term, and balloon wrong in either direction kills the deal. Price it too low and the seller is subsidizing the buyer for no reason; price it too high and the buyer walks to a bank instead, defeating the point of offering seller financing in the first place.

The 2026 Rate Range and Where It Comes From

Most seller-financed notes in 2026 are priced 8% to 12%, though a more conservative estimate puts the mid-2026 range at 7.5% to 9.5%. Either way, the rate is generally set 2 to 5 percentage points above the prevailing conventional 30-year fixed rate, which was 6.52% as of June 30, 2026.

That spread above the conventional rate is the seller’s compensation for taking on the risk of being the lender, a risk a bank would price similarly if it were underwriting the same buyer through a traditional mortgage.

The IRS Floor You Cannot Structure Around

The note’s rate has to be set at or above the IRS’s published Applicable Federal Rate for the note’s term. Below that floor, the IRS imputes interest income regardless of what rate the note actually states, which is the legal ceiling on how far a seller can go to sweeten a deal by offering an unusually low rate.

The IRS publishes updated AFR tables monthly, most recently Revenue Ruling 2026-13, effective August 2026, so the specific rate has to be pulled from the current table on irs.gov at the time the note is written rather than assumed from a previous deal or a different month’s table.

Worked Example: Structuring a Note That Pencils

Take a $200,000 seller-financed note priced at 9%, inside the cited 8% to 12% range, amortized over 30 years with a 5-year balloon. The monthly payment on that schedule comes out to roughly $1,609.

Because the note amortizes over 30 years but balloons at year 5, the buyer has only paid down a small fraction of the principal by the time the balloon comes due: after 60 payments, roughly $191,760 of the original $200,000 is still owed, even though the buyer has made five years of on-time payments. That gap between what has been paid and what is still owed is the entire reason a balloon note carries refinance risk for the buyer, and it is exactly the number a wholesaler should walk both sides through before the note is signed, not after the balloon date arrives as a surprise.

Setting the Term So the Balloon Works for Both Sides

A shorter balloon, 3 years instead of 5, gives the seller a faster exit but gives the buyer less time to improve credit and refinance into a conventional loan, raising the odds of a default at the balloon date. A longer balloon gives the buyer more runway but ties the seller’s capital up longer.

There is no single right answer; the decision comes down to how badly the seller wants to be fully cashed out versus how much runway the buyer realistically needs to refinance, and every note should be priced at or above the current AFR regardless of which term is chosen.

Sources

The external data in this guide draws on the sources below. Figures described in the text as estimates or industry triangulations are directional and are not attributed to a single dataset.

• Seller Finance Dream, "Understanding the Seller Financing Interest Rate and Down Payment"
• Bankrate, "Today’s Mortgage and Refinance Rates, June 30, 2026"
• IRS, "Applicable Federal Rates"

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