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 Interest Rate

Interest Rate Creative Real Estate Financing Technique #2

A higher interest rate rather than the current mortgage interest rate may encourage the seller to accept terms that would otherwise be unacceptable. 

This technique could allow a seller to postpone a portion of capital gain that might otherwise have to be reported in an installment sale under the new tax law.

For example, a seller has a property for sale at an asking price of $100,000. The property has an existing, assumable mortgage of $50,000 payable at the rate of $450 per month. The seller wants $10,000 cash at close and will extend you a loan of $40,000 in the form of a mortgage at 10% interest.

Offer the seller $95,000 with no money down. Agree to take over the loan of $50,000 and pay 15% interest on the remaining $45,000 for a period of five years. The result is a monthly interest payment of $563 ($45,000 x 15% divided by 12 months) to the seller. You initially pay only the interest with $45,000 due in five years.

If the total monthly payments for the first and second mortgage of $1,013 per month ($450 + $563) result in a negative cash flow, restructure the second mortgage so that only a portion of the 15% interest is paid monthly. The balance would be accumulated but not compounded and would be due along with the $45,000 at the end of five years. 

Example Summary Technique #2

Lower The Price / Raise The Interest Rate


What You Need To Begin:

A seller who does not have to receive cash at closing and is interested in monthly income.


Summary Of Terms:

Asking price



$  50,000

Monthly Payment

$      450

Required down payment          

$  10,000

Mortgage by seller @ 10%

$  40,000




$  95,000

Take over loan

$  50,000

Accept mortgage by seller at higher rate of interest.

$  45,000

If cash flow is negative, restructure the interest payments.




  • The buyer has a property for no money down. The monthly payments may be high, but restructuring the interest can help alleviate some of the burden.
  • The seller has received a good price and high monthly income.

Specific Situations to Apply Technique #2


The Property

Property Offered Below Market


The Buyer

No Cash at All

Poor Credit


The Seller

Must Sell Immediately

Will Finance: Wants High Interest

Interest Rate To Wrap Around Mortgage