“Face rate” simply refers to the interest rate that is being charged on the note. Typically seller-financed notes are written between 8 percent – 12 percent.
The higher the interest rate, the more valuable the note to an investor.
Remember, “discount” comes from the difference between how much the investor wants to earn on his or her money and what the “face rate” of the note is.
If the investor wants to earn 12 percent and the note is written at 6 percent, there may be a large discount. If the investor wants to earn 12 percent and the note face rate is written at 11 percent, the discount may be slight.
The face rate of the note never changes, unless written in the note itself. In other words, if the race rate of the note is 10 percent, it will remain 10 percent regardless of what price the investor pays for the note.
Price and payment never change for the payer of the note.
Leave a Reply