My buyer just asked if he can pay me 6 percent and I said yes without doing the math first

The five-year balloon is where I'd push back on the framing a little. Five years feels protective because you get your principal back "soon," but if he's slow on payments in year three and you end up in a workout conversation, that clock is now your enemy, not his. You're trying to foreclose or negotiate a payoff at the exact moment he knows the balloon is coming and has the most leverage to stall.

The thing almost nobody mentions until it costs them: the yield gap you found at 4.1 gets worse the moment he refinances early, which is exactly what a competent buyer does if rates drop in year two or three. Your 4.1 assumes he rides it to month 60. If he exits at month 28, your actual yield on deployed capital drops again because you front-loaded the origination costs and underpriced the coupon, and now you're redeploying at whatever the market looks like in 2027. What rate did you use when you modeled the note to get to 4.1, and did you run an early-exit scenario at all?

The person who told you about coupon versus yield gave you the right frame. The assumption doing the most work in your 4.1 percent figure is cost basis, specifically what you netted at closing relative to the note's face value. If you sold at a discount to get the deal done, you created a yield drag before the first payment arrived. That drag is permanent unless the note pays early, which a five-year balloon makes somewhat likely, and prepayment actually compresses your yield further if it happens in years one or two before enough interest has accrued.

The note-sale market prices on yield to the buyer, not your coupon. A note buyer looks at the collateral, the borrower's payment history, the loan-to-value at origination, and the remaining term, then works backward from a yield target they need. If that target is, say, 9 or 10 percent on this type of paper, they discount the face value of your note to get there. That discount is real money you leave on the table at the point of sale. A 6 percent coupon on a five-year balloon is not unattractive paper, but the spread between what your borrower pays and what a buyer demands could be meaningful depending on LTV and seasoning. You cannot close that spread now, but you can protect it going forward.

Two things worth doing before this note is executed: get a real quote from at least one note buyer on the paper as currently structured, so you know your actual liquidity options and at what cost. Then talk to your attorney about prepayment terms, whether a prepayment penalty in the early years protects your yield position if your buyer refinances the moment conventional rates soften.

The risk you have not mentioned is the LTV cushion. What does the property need to be worth for your principal to be protected if he defaults before the balloon?