Early payback with creative financing!?

[John Magana]

I am about 6 months away from starting my investment journey meaning starting the process of buying my first property. 

My question is this. The seller is asking $340,000 for a property. I offer them 250K at 3% seller financing over 30 years with 25,000 down. This means at the end of 30 years they will have made their total $340,000 asking price. However I am able to pay off the property in 10 years meaning the seller only ends up making $35,000 in interest making it to $260,000 versus $116,500 in interest to get to the $340,000.  Is this a thing? and if so is this simply part of the underwriting of the loan? Has anyone seen this before? Thanks!

[Bill B.]

1)  The interest to total is a “non-thing”. You could pay them off after 1 month and they’d only get $600 in interest. (Assuming no pre-payment penalty.) They get their capital back sooner instead of more interest. 

2) Be careful if this involves a senior or someone you could be seen “abusing” there isn’t a sane person in the country that would take 10% down, 3% interest, 30 year seller financing for 25% off list price. 

If you want your example to be: Pay full price, seller financed at 6% (the amount they could get guaranteed from a bank.), with 20% down (since there will usually be about 10% closing costs most seller wouldn’t want to walk with nothing with 10% down.) for 5 years . And then you paid it off in 3 years instead. As long a your loan paperwork doesn’t say there’s a prepayment penalty, they get their capital back instead of interest.