Selling A Mortgage Note

You don’t have to be a sophisticated investor to sell a mortgage, although conventional thinking leads us to believe that only the most astute and risk taking investor will venture into this arena. The fact is that once you understand the process, selling notes is in many respects much simpler than marketing and closing on an actual property. And simplicity of transaction equals consolidation of dollars and reduction of your most precious commodity – time. Taken together, these factors often add up to a shorter path to a greater return on your investment.

Here are some of the things to consider when selling a mortgage note:
1) The note will be more valuable if the interest rate on the loan is higher than prevailing interest rates, because buyers will see it as an opportunity to generate higher returns. Sometimes, for instance, a owner/seller-financed home sale will involve a mortgage with a higher rate, because “owner financed” property sometimes sells to buyers who are otherwise not able to get a loan. This doesn’t necessarily mean they are at a higher risk for default, however, and if you find a mortgage with a good payment history and a high interest rate, this can be a wonderful investment opportunity.

2) Balloon payment notes that are about to come due may seem like a great bargain, because you will get a huge payment soon if you own the loan. But often these loans are trouble in disguise, because if the debtor defaults, you can end up in foreclosure proceedings, and perhaps eligible for only a partial payment on the note. Selling this kind of note can sometimes be difficult unless you sell it for a discount, especially if the person paying on the mortgage has trouble making their payments on time.

3) The same can hold true for loans that don’t mature for a long time – say for example, a conventional 30-year mortgage – because your potential buyer may want to “cash in” sooner. For that reason, a 5-10 year note will typically be more popular with those shopping around for mortgages to buy, and a 3-5 note may bring an even better price.

4) If you have ever applied for a loan to buy a home, you can apply – no pun intended – the lessons you learned from that process to your knowledge of selling a mortgage. The bank you borrowed from checked your credit rating, did an appraisal of the property, and evaluated your ability to produce enough income to make your monthly payments. When you decide to sell a mortgage, the same kinds of criteria will be involved in determining the value of your mortgage note. If you have lots of equity in the house, and the note as a long history of timely payments, for instance, it is probably a sound investment and will fetch a higher price when sold to an investor. If the property is in disrepair and the payment history is sketchy, investors will be hesitant to buy the mortgage, unless it is sold at a deep enough discount to help them offset any expensive problems.

Pinnacle Investments
Email: info@pinnacle-investments.com
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