Seller Financing - Amortized Over ?
I am buying two houses from a seller for 160k. He wants 60k cash and he will finance 100k for 9% with a five year balloon, no prepayment penalty. I intend on rehabbing and selling within 6 months. But should it be amortized over 5, 10, 15, ?? year term? For the first year, the interest on the 5, 10, 15 are almost the same. the payments are higher on the 5 year term, but the extra payment goes almost directly to principle. I can afford the higher monthly payment.
Any input on the pros and cons of the different amortized terms?
Thanks
Brenda
Hi Brenda,
If you’re going to sell within six months or so anyway, I would be inclined to go for the longest amortization period I could get. Even 30 due in 5, if the seller would go for it. Or, I might even ask the seller to up the rate and do interest only.
Even though you’re paying down principal faster with a shorter amortization, it all comes back when you sell anyway. So, I would rather have that money during my holding period, rather than recouping it when I sold.
My vote would be to go for the smaller payments during the time you hold it.
Just my initial thoughts.
I agree , I would also ask the seller to carry with no payments due for 6 months..
My preferences are:
1. No interest, no payments. All due in x.
2. Straight Interest only, no payments, all due in x.
3. Interest only, Compounded Annually, No payments, All due in x.
4. Interest only, paid annually.
5. Interest only, paid Semi Annually.
6. Interest only, paid monthly.
I am in an area where there is high appreciation, and I anticipate it to continue. I usually expect to refi in a year or so.
Review this article:
http://www.thecreativeinvestor.com/modules.php?name=Articles&file=article&articleid=472
It should help answer many of your questions.
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Best regards,
Tim[ Edited by norrist on Date 10/21/2005 ]