Carryback loans are financing options that are provided directly from a seller on a purchase of an asset or property. They are typically structured with senior loans or mortgages to provide the remaining balance for the borrower. Because the loans come from individuals rather than commercial lenders, the terms of these loans can vary significantly.
High Interest Rate
This loan is highly risky for the lender because it is typically a subordinate loan to the primary mortgage. This means it will be paid off second, in case of bankruptcy. The loan may not even be disclosed to the primary mortgage provider, and in this case is called a "silent second" loan. The loan is coming in under the radar at high risk, meaning there will be a high interest rate.
High Monthly Payment
Carryback loans are usually paid off quickly. The seller is offering to help finance a portion of the total selling price, essentially reducing the amount of proceeds they are able to receive. The seller will receive the monthly payments and will receive the income, but a seller will be looking to have a borrower pay off the loan as quickly as possible. A definitive repayment schedule will be decided before the loan is extended.