Posted by John Behle on March 30, 2000 at 24:06:00:

Seller financing is treated and calculated the same way as bank financing. It can be written differently, so there are cases I see as a mortgage buyer where the terms are pretty strange.

Interest can be calculated in different ways if lender and borrower agree, but in most cases it is just a straight amortization schedule.

As you pointed out, there is interest on the whole balance for the first month. The payment includes some amount of principal, so the next month there is less of a balance, less interest and more principal. This continues until the last month where there is a tiny amount of interest and the final amount of principal is paid.

If you get a seller to take on a mortgage, is the interest figured and amortized like it usually is on a bank-financed mortgage? When I refinanced my house, I received an amortization table from the lender that showed the mount of interest and principal for each payment; the amount of interest was more in the beginning and tapered off towards the end; obviously not “simple” interest.

For example, lets say that the seller agrees to take a mortgage for 50,000 @ 10% for 10 years (120 months). Since 10% of 50,000 is 5,000, would the total amount paid be 55,000 with a monthly payment of 458.33 (416.67 principal and 41.67 in interest?