Interest Rate on the REC

When you are negotiating the purchase price of the home that you are going to have the owner finance, it is important to consider what interest rate you are going to pay the seller for holding the note. Many times there is already a floor built into the interest rate, due to the rate that is being charged on the underlying mortgage, but if the property is owned free and clear this can be a great opportunity to save BIG $$..  The rate is negotiable. The rate that the seller has on his/her mortgage is going to determine the payment that must be met by the new buyer in order to avoid the seller from having to “chip in” to make the monthly payment. For example, if the payment on the underlying mortgage is $1500.00 and your new payment to the seller is $1400.00 then the seller must make up the difference on a monthly basis to satisfy the Mortgage Provider. To avoid this, the seller will usually ask for a payment of $1500.o0 or more, and depending on your outstanding balance, you can determine the rate the seller is asking for from there. In rare instances, the seller may allow for an interest rate on the Real Estate Contract that is lower then his/her rate, as long as the unpaid principal balance on the Real Estate Contract is more than the seller will owe once the note is called due and payable.