Is this seller finance deal good or bad

[Jorge G.]

Seller has offered to finance his 600k property with the following terms:

10% down payment and 6 percent interest rate. The goal is to wait for rates to go down and me refinance in 3 years for a better rate. The goal of this house is to make it my forever home since it pretty much has all I want in my house. Interest-only payments of 3200 dollars. Looking to do this since my business suffers from seasonality so having the option to only do interest in slower months works better for cashflow reasons. The recession next year scares me and I question if my business will continue to do well. 

Instead of selling my current house which I bought at 214 with a 3.65 interest rate, I want to keep it and rent it out. My current house is valued at 500k so i have equity of roughly 300k.

Is this a good, bad, horrible deal?

[Scott E.]

First and most important piece to evaluate - Ignore everything else and determine if the house is actually worth $600,000. I'd actually pay for an appraisal if I were in your shoes. It is not a good plan to pay at or over market value for a house just because the seller is willing to offer seller financing.

Second - Don't count on interest rates being below 6% in 3 years. It's possible (although unlikely) that rates don't go back under 6% in your lifetime. So you shouldn't buy the deal based on this assumption.

Third - Understand the implications of going from an interest loan to a fully amortized loan. If you're putting 10% down that means he's financing $540,000 at 6% which would come with an interest only payment of $2700. Let's say your dreams come true and rates come down to 5.5% in 3 years. Well your fully amortized payment on a $540,000 loan at 5.5% is going to be $3,066. This means that even though your rate is going down, your payment will go up.