Should You Carry the Note When You Sell Your Home?

Given the large number of fantastically low-rate mortgages in place and the growing “Silver Tsunami,” the idea of carrying back a note for a buyer has resurfaced. It’s not a new idea, and it has some challenges… let’s run the numbers.

The example

Let’s say you wish to sell your $1.4M home and retire to Tennessee. Your current mortgage rate is 3%, your balance is $400,000 and your payment is $2,070 a month.

A traditional buyer comes up with 20% ($280,000) and gets a 6.75% mortgage for $1,120,000, a principal and interest payment of $7,264 a month.

As an alternative, you become the bank. You pocket the buyer’s $280,000 down payment and carry back a note for $1,120,000 at a discounted rate of 5%. That saves the buyer $1,252 a month and puts $6,012 a month in your pocket. Subtract your existing mortgage payment and you’re $3,942 a month ahead. These notes may be interest-only or principal and interest, and they typically have a 5-year term with a balloon payment.

What can go wrong

• The buyer can’t refinance. The buyer will need new financing in 5 years. If they can’t qualify (job loss, poor credit, divorce), you’ve got a problem.
• The market drops. If prices fall over the next 5 years, there may not be enough equity for the buyer to refinance and pay you off. Not likely, but possible.
• The buyer defaults. You’d have to foreclose and take the house back, which can take 6 to 9 months, plus repairs and selling expenses (about 6%). If the market has risen 3% a year, the home may be worth $1,610,000, and after costs you might net $1,481,000. But you lost about 9 months of interest, so you broke even… maybe.
• Your existing mortgage. Most conventional mortgages contain a “due on sale” clause, so you may be required to pay off your $400,000 balance when title transfers. Combining the buyer’s $280,000 with savings to pay it off would put the entire $6,012 a month in your pocket.

Why not just buy a 5% Treasury?

• Capital gains deferral. Structured as an installment sale, you generally pay capital gains only on the principal portion of each payment. The interest is taxable as income, so consult your tax professional.
• A faster sale at a premium. You may be able to sell for as much as 5% more than in a conventional sale, because buyers who can’t qualify for traditional financing at today’s rates will flock to your house. But if they can’t qualify now, how will they qualify in 5 years?

Get an opinion first

I recommend getting an opinion from an experienced mortgage professional before you list. If you’re considering a carryback, call me…

Examples are for illustration only and are not a rate quote, a commitment to lend or an offer of credit. Rates, terms and eligibility vary.

This is general information, not tax or legal advice.

Originally published in The Trusted Advisor, October 2026.