Contract for Deed – Minimum Interest Rate

To close the loop, yes there is a minimum IR for a CD. Similar to the max rate, the min rates are posted monthly by the IRS. Here is a link to the most recent published minimum rates – “Applicable Federal Rates” (April 2011)

http://www.irs.gov/pub/irs-drop/rr-11-10.pdf

The idea of the minimum IR is to ensure you pay taxes on the transaction vs. add the IR to your sale price  for a higher sale price.  If you pursue a CD claiming no IR the IRS will apply the AFR to your transaction for tax purposes.

When you are considering a CD – whether buying or selling it is useful to put all the moving pieces together and compare.  A basic Mortgage Amortization template in excel will be a necessary input.

Here is a grid that I recently created and used:

Rows:

Sale Price

Downpayment

Interest Rate (enter into Mortgage Amortization template)

Loan amount (SP – Downpayment, enter into Mortgage Amort template)

Sum of payments (multiply monthly payment (from morg amort template) * total months)

Payoff (from mortgage amortization template)

Net (Downpayment+total payments + Payoff)

Each column can list a different scenario.  You can color code offers and examine the differences.  Some people will prefer a higher downpayment for others a strong interest rate is a deciding factor.

Excel has a variety of free templates under the search “Mortgage Amortization”