If you have recently sold property and financed the buyer by taking back a mortgage or deed of trust, you own a Mortgage Note. You will be collecting monthly payments for years to come. But what is that worth in dollars today, and how can you get your money ahead of time?
If you need a lump sum of cash now, you can sell your mortgage note to a third party wanting a regular payment stream as an investment. There are many companies out there that will buy your mortgage, discounting the payments for the remainder of the loan back to present day dollars. But there is a watch out here.
Keep in mind that the interest rate that will be used to calculate what today's dollars are worth will be different than the interest rate on the mortgage note. Why is this? Well the investor most likely will want a different interest rate than what the mortgage note is for based on current rates.
For example, if the interest rate on your mortgage note is 6%, but the average rate in the market is 8%, why would an investor agree to 6%. He would still be getting the 6% on the face of the note, but by paying less than the present value at 6%, he makes up the additional 2% up front.
One last thing to keep in mind is that the higher the discount rate that a buyer uses, the smaller the lump sum payment will be. This also works in reverse - if the note says 8% and the current rate is 6%, an investor will pay a premium to buy that payment stream.
There are many companies that purchase mortgage notes, so it would be wise to shop around to find the best rate, terms, and reputation in order to get the right value for your sale.
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