I would call it an “interest only” loan with a balloon payment due at some future maturity date. You would be making payments of JUST interst due on the loan.
eg. $50,000.00 seller take back “interest only” @ 10%
This would be $5,000.00 per year of interest which divided by 12 months in year equates to a monthly “interest only” payment of $416.67. At some future point in time the FULL $50,000.00 principal would have to be repaid.
There really are no “special” forms to use in a contract when declaring a wrap around mortgage, etc. Just make sure you identify the terms of repayment, etc. You might consider using a “seller financing” addendum form that you can obtain from Professional Publishing www.profpub.com
Posted by Jim LaVerdi on January 20, 2000 at 16:03:22:
Dear Friends,
When a seller takes back financing, and agrees to accept interest only payments on the principal for X amount of months, what is this classified as? A Wrap, A Land Contract, a Seller Carryback or what? Please clear this up for me. I appreciate all of your helpful suggestions. Also when doing a Wrap or Carryback are there special forms to use or do you just add an addendum to your sales contract?
Any of the types of financing that you mentioned could be interest only. As David mentions, the type of financing is indicated by who holds the deed, and perhaps the security instrument and order of recording…not by how the interest is collected.
I use an addendum for my financing that sets for the terms. At closing the actual instrument of financing is executed.
For clarification, you would have a Seller carryback (or owner carryback, or owner financed) agreement. If the Seller still has the deed, it would be a Seller carryback “contract”, or “land contract”… interest only at whatever percent, due in whatever years or months. If the Payor has the deed, it would have a Seller carryback trust deed (note and deed of trust), or mortgage, interest only… etc.
Does that muddy the water enough for you?! Best of Luck!