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What Is a Mortgage Note?
A mortgage note is a financial document that details a loan agreement used to purchase property. Traditionally, you may go to a bank, credit union or another financial institution to get a real estate loan. They loan you money in exchange for a long-term payment plan that can last decades, depending on the particulars of the mortgage.
A private mortgage note is held by a home or property seller. In these instances, the seller may own their property outright and can offer the buyer their own mortgage deal.
Most mortgage notes are for five years, during which time the buyer typically applies for a mortgage from banks and repays the seller using the bank loan. Some sellers — particularly those with commercial property — see this kind of deal as a long-term play: they can depreciate the property over time for tax benefits, get reliable monthly income and have an asset to use as collateral if things go sour.
As time progresses, private mortgage holders or buyers may reconsider holding a mortgage note. If note holders need money now, they always have the option to sell their mortgage note.
Why Do People Sell Mortgage Notes?
- Obtaining a lump sum of cash
- Paying off debt
- Making retirement affordable
- Investing the money in alternative investment vehicles
- Paying medical bills
- Paying college tuition
- Buying a house
There are no restrictions on how someone can spend the money generated from selling a mortgage note. In addition, the process of selling a note in this market can be much smoother than a regular mortgage deal.
How Do I Sell a Private Mortgage Note?
The process is simple. Many companies are willing to buy your mortgage note and take on risk because these are collateral-backed securities. You will need the security you received when completing your financing, which is called a mortgage or trust deed.
Once you decide to work with a company that buys mortgage notes, you can call them or complete a form online to get an offer. Offers are based on the current market, an appraisal of the property, the terms of the note and the company’s competitive rates.
While fees for using a real estate attorney can cost you thousands, these companies often provide an attorney and directly fund you to give you a competitive rate.
- Sell your entire mortgage note, so you stop receiving mortgage payments and get cash now
- Sell a specific dollar amount, so you receive a lump sum of cash now and later will not receive several of your mortgage payments
- Sell a percentage of each scheduled payment, so you continue to get smaller payments and a lump sum of cash now
If you have questions about what is a fair rate or want a recommendation for companies to work with, we’re here to help. When you call our hotline, you’ll be connected with financial experts who will listen to the specifics of your situation before making recommendations and answering any questions you have.
How Much Is My Real Estate Note Worth?
You will not be getting the exact principal from your mortgage, but you can still receive a large offer. To help you understand how much money you will receive for your payments, here are the factors used to determine the value of your mortgage note:
- Underwriting pay history (credit rating of the borrower)
- Property appraisal
- Clear title
- First position
- Date, amount and interest rate of remaining payments
- Length of mortgage term
- Down payment amount placed on note
You can find most of this information on your promissory note and deed of trust.
Tips for Getting the Best Value from Your Mortgage Sale
Not all mortgage notes have the same value. While some are difficult to sell, others can be purchased with a low discount rate, which means you get more money.
- Contracts that include a building and land are more likely to be approved.
- You may receive more value if you sell only a portion of your note.
- Sell payments due in the next few years to get higher value.
- Notes with shorter overall terms will receive a greater cash value.
- It’s easier to sell notes with clear terms in the deed and promissory note.
- The value of your mortgage will increase when low interest rates dominate the market.
- It will be difficult to sell a note if a borrower has missed note payments.
- If a borrower has excellent credit, your discount rate will be smaller.
If you’re ready to sell your mortgage note but don’t know where to start, give us a call. Our financial experts will be able to answer any questions you have about the process, can make recommendations for mortgage note purchasing companies and may be able to provide you an offer over the phone.
3 Cited Research Articles
- Bortz, D. (n.d.). Home Loan Closing: A Homeowner's Guide to Closing Costs, Taxes, and More at the Mortgage Finish Line. Retrieved from https://www.realtor.com/advice/finance/how-to-sail-through-the-home-closing-process/
- Consumer Financial Protection Bureau. (n.d.). Guide to Closing Forms. Retrieved from https://files.consumerfinance.gov/f/documents/cfpb_buying-a-house_closing-forms_guide.pdf
- Mandell, L.J. (2018, August 22). What Is a Mortgage Note—and Do You Know Where Yours Is? Retrieved from https://www.realtor.com/advice/finance/what-is-a-mortgage-note/