Q: I used owner financing five years ago to purchase my home. The loan had an interest rate of 5.46 percent and was structured as a 15-year mortgage with 20 percent down.
Here’s my question: If I chose to pay off this loan early or sell this house, do I have any equity built up from the payments I’ve been making? Does the owner have to keep the interest part of the payments in separate accounts and if he does not can it be considered that he has comingled the funds?
A: When you bought the property and agreed to owner financing, you and the owner should have set up an amortization table so you and she could see how quickly you were paying off the property.
You can still do this. Go online to ThinkGlink.com and use the amortization calculator to figure out how quickly you have been paying off your mortgage. You should be easily able to calculate how much principal is left.
Let’s say your loan was for $200,000 originally. On a straight 15-year amortization schedule, you would have paid off about $50,000 in principal at the end of the fifth year. You would still owe about $150,000. At the end of the tenth year, you would owe about $85,000 in principal on the loan.
Unless you specified that the seller had to keep the cash you paid him separate, there’s no reason I can think of why he can’t do what he wants with the money you pay each month. It’s the seller’s money.
You need to keep track of all of the payments you have made to the seller, but the seller is probably not required to account for the cash you have paid in any specific manner. From your perspective, you just need to know how much equity you have built up. Your seller financing documents might have additional information on how the payments were to be applied.
Take a look at the documents and then you might be able to figure out where you stand in terms of the amount you still owe on the seller financing loan.
If you’re planning to pay off this loan, and have paid extra along the way, you may have to hire an accountant to calculate exactly how much you owe the seller at this point. You should also check your loan documents to see whether you are allowed to pay off this loan early.