Seller financing basics

What Interest Rate Can I Charge on Seller Financing in Utah?

Utah has no usury cap on an agreed written rate, but the IRS sets a floor. Here is how the rate, payment, late fees, and Dodd-Frank rules fit together.

8 min readPublished Last updated

Informational onlyThis page is general information about Utah law, not legal advice for your situation. Reading it doesn't create an attorney-client relationship. Read the disclaimer.

In Utah, you can charge any interest rate you and the buyer agree to in writing. There is no usury cap on an agreed rate. The practical limits come from elsewhere: the IRS minimum for tax purposes, Dodd-Frank rules on adjustable rates, and what your buyer can actually pay each month.

Is there a maximum interest rate for seller financing in Utah?

No. Parties to a lawful contract in Utah may agree on any rate of interest (Utah Code § 15-1-1). If the contract sets no rate, the legal rate is 10% a year (Utah Code § 15-1-1).

That means the rate is a negotiation, not a legal ceiling. Write the rate in the promissory note. Write it as a number, like 6.5%, and say whether it is fixed. A vague rate invites a dispute later.

"No cap" does not mean "no consequences." A rate the buyer can't carry leads to a default. A default leads to foreclosure, and foreclosure is slow and costly for you. The best rate is often the one that keeps the buyer paying for 30 years, or until a refinance.

Is there a minimum interest rate for seller financing?

For tax purposes, yes. If your note charges less than the applicable federal rate, the IRS can impute interest under sections 1274 and 483 (26 U.S.C. §§ 1274, 483; Rev. Proc. 2025-32). That means part of each payment gets treated as interest, even if the note calls it principal.

The IRS publishes the applicable federal rates, or AFRs, every month. Here are the current figures:

Applicable federal rates · September 2026 · annual compounding
4.18%Short-term (3 years or less)
4.49%Mid-term (over 3, up to 9 years)
5.12%Long-term (over 9 years)

Source: Rev. Rul. 2026-17. The IRS publishes new rates every month; the rate for your note depends on its term and the month of the sale.

For September 2026, the annual rates were 4.18% short-term, 4.49% mid-term, and 5.12% long-term (Rev. Rul. 2026-17). Which rate applies depends on the note's term. Your tax preparer should confirm the right one for your note.

There is also a cap on the test rate. For a qualified debt instrument, section 1274A caps the test rate at 9% (26 U.S.C. § 1274A; Rev. Proc. 2025-32 § 4.40). For 2026, a qualified debt instrument is one of $7,462,600 or less (26 U.S.C. § 1274A; Rev. Proc. 2025-32 § 4.40). With current AFRs well below 9%, the AFR is the number to watch for most home sales.

So a family sale at 2% to help a child buy your home has a tax cost. Talk to your tax preparer before you set a rate below the AFR. See our guide to servicing and taxes on a seller-financed note for how interest gets reported.

How does the interest rate change the buyer's monthly payment?

Every point of rate moves the payment a lot. On a $300,000 note over 30 years, going from 5.5% to 7.5% raises the monthly payment from $1,703.37 to $2,097.64. It adds about $141,940 in interest over the life of the loan.

The table uses a $300,000 note, fully amortizing over 360 months. Payments are principal and interest only. Taxes and insurance are extra.

RateMonthly paymentTotal interest over 30 yearsTotal paid
5.12% (September 2026 long-term AFR)$1,632.54$287,713.72$587,713.72
5.5%$1,703.37$313,212.12$613,212.12
6.5%$1,896.20$382,633.47$682,633.47
7.5%$2,097.64$455,151.67$755,151.67

Two things stand out. First, the buyer's payment rises by roughly two hundred dollars a month for each point. Second, at 6.5% and above, total interest is more than the $300,000 note itself. That only happens if the buyer pays for the full 30 years.

Most buyers don't pay for 30 years. They sell or refinance. A balloon changes the math too. At 6.5%, after 60 payments, the buyer still owes about $280,833 on the $300,000 note. That's the amount a 5-year balloon would call for. Read more in balloon payments on seller financing.

Run your own numbers with the seller-carry calculator. It shows the payment, total interest, any balloon, and a full amortization schedule.

Can you use an adjustable rate on a seller-financed note?

You can, but an adjustable rate can cost you a Dodd-Frank exclusion. Both federal seller-financer exclusions require a fixed rate, or an adjustable rate that stays fixed for at least five years with reasonable caps.

Here is how the two exclusions treat rates:

  • The three-property exclusion. It covers any person financing three or fewer properties in 12 months. The financing must be fully amortizing, with no balloon, and the seller must determine in good faith that the buyer can repay. The rate must be fixed, or adjustable only after five years (12 CFR § 1026.36(a)(4)).
  • The one-property exclusion. It covers a natural person, estate, or trust financing one property in 12 months. It bars negative amortization but allows a balloon. The rate must be fixed, or adjustable only after five years (12 CFR § 1026.36(a)(5)).

These are exclusions from the loan-originator definition, not from the Truth in Lending Act generally (12 CFR § 1026.36). They decide whether you're treated as a loan originator for the deal.

For most home sellers, a fixed rate is simpler. It keeps you inside both exclusions on the rate question. It also gives the buyer a payment that doesn't move. The licensing checker walks through which exclusion may fit your facts. Our Dodd-Frank and SAFE Act guide covers the rest.

What late fees and prepayment terms can you set on a seller-financed note in Utah?

Outside the Utah Consumer Credit Code, late fees and prepayment terms are set by the contract. The state Seller Financing Addendum defaults to prepayment without penalty (Seller Financing Addendum § 2.1).

The addendum also says the seller provides an amortization schedule, the total interest, and the APR (Seller Financing Addendum § 2.1). Principal may be prepaid without penalty under the addendum (Seller Financing Addendum § 2.1). If you want different prepayment terms, raise it with your attorney before you sign.

The Utah Consumer Credit Code applies only to a "creditor." That means someone making more than five dwelling-secured extensions a year (Utah Code § 70C-1-302(4)). The code also excludes closed-end credit secured by a first lien on a dwelling (Utah Code § 70C-1-202(2)(b)). Where the code does apply, the late charge is capped at the greater of $30 or 5% of the delinquent amount (Utah Code § 70C-2-102).

Whether the code applies to a particular second-position seller carry is an open question. Don't assume either way. Ask your attorney to look at your facts.

A late fee still has practical limits. A charge that works like a penalty invites a challenge. A common approach is a grace period, then a flat or percentage fee written plainly in the note. On a $1,896.20 payment, a 5% fee would be $94.81. Put the grace period and the fee in the note, not in a side email.

How do you pick a rate the buyer can actually pay?

Start from the payment the buyer can carry, then work back to a rate. A rate that looks good on paper is worthless if the buyer defaults in year two. This section is practice guidance, not a legal rule.

Ask these questions before you set the rate:

  1. What can the buyer pay each month? Look at income, other debts, and the down payment. A larger down payment gives the buyer something to protect.
  2. How long will the buyer stay in the note? If the plan is a refinance in five years, the rate matters less than the refinance odds.
  3. What would a bank charge this buyer? A seller rate is often a trade. The buyer gets flexibility. You get a return on money you'd otherwise receive at closing.
  4. Is the rate at or above the AFR? If not, talk to your tax preparer first.
  5. Is it fixed? A fixed rate is simpler to administer and keeps the Dodd-Frank question cleaner.

A higher down payment and a lower rate is often safer than a small down payment and a high rate. Read about down payments on seller financing. The complete guide to Utah seller financing puts the rate in context with the rest of the deal.

What rate terms belong in the promissory note?

The note should state the rate, how interest is calculated, and what happens when a payment is late. Everything the buyer owes should be written in one place. This is practice guidance on drafting, not a statutory list.

A clear note usually covers these points:

  • The rate as a number. For example, 6.5% a year, fixed for the life of the loan.
  • The payment. The monthly principal-and-interest amount, the first due date, and the day of the month it is due.
  • The term and any balloon. For example, 360 monthly payments, or 60 payments and a balloon of the remaining balance.
  • The late fee and grace period. For example, a fee of a stated percentage if a payment arrives more than 10 days late.
  • Default interest, if any. Some notes raise the rate after a default. Write it plainly if you use it.
  • Prepayment. The addendum default is no penalty. Keep it or change it on purpose.

If you and the buyer later change the rate, put the change in a signed written modification. A text message is not a note amendment.

What Greg would tell you

"There's no Utah cap on the rate you agree to, but the rate is only as good as the buyer's ability to pay it. Set it at or above the federal rate, keep it fixed if you can, and put every term, including the late fee, in the note. Then run the payment and ask yourself whether you'd make it."

Frequently asked questions

Is there a maximum interest rate for seller financing in Utah?

Utah has no usury cap when the parties agree on a rate in writing. Without an agreed rate, the legal rate is 10% a year.

Is there a minimum interest rate for seller financing?

For tax purposes, the benchmark is the applicable federal rate, published monthly by the IRS. Charging less can lead the IRS to treat part of each payment as interest anyway.

What was the long-term AFR for September 2026?

The September 2026 long-term annual AFR was 5.12%, under Rev. Rul. 2026-17. Mid-term was 4.49% and short-term was 4.18%.

Can I charge a late fee on a seller-financed note in Utah?

Usually yes, if the note sets the fee. Outside the Utah Consumer Credit Code, late fees are contractual. If that code applies to you, it caps the late charge.

Can I use an adjustable rate on a seller-financed note?

You can, but it matters for Dodd-Frank. Both seller exclusions allow an adjustable rate only if it stays fixed for at least five years, with reasonable caps.

This site is for general information about Utah law and is not legal advice. Using it does not create an attorney-client relationship. Every transaction is different — talk to an attorney about yours. Attorney advertising.

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