Following is a private message I received:
Hi Nathan, sorry to bother u. I just had a question re. owner finacing.
The selller finances 20% of the sale price for 2 years. Can he charge whatever interest he wants?
Also what happens to the remaining amount from the sale price?
Here is my answer:
If the seller creates seller financing for 20% or any percent of the purchase price the interest rate cannot be changed to whatever he wants. The interest rate needs to be changed in accordance to the contract. If a contract (note or mortgage) defines the interest rate at 5% the interest rate stays at 5%. The time the interest rate can change is when the contract says that it is variable...but there has to be something that the variable is set at or based upon, such as if prime rate goes up so does your interest rate.
As for the rest of the 80% of the purchase price (20% seller financing subtracted from 100% of the purchase) this is paid some other way. This would mean you would need to come up with 80% cash or other loans. Because the seller is willing to give 20% financing does not mean the other financing is wiped out, it still has to be paid some way.
I hope this information helps any that have had similar questions. If you have further questions about this please place them below and I am sure they will be answered by myself or other knowledgeable contributors to the site.
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