Deciding whether or not to sell your mortgage note is easier when someone simply offers you a “Full” purchase. In addition to being a straightforward buyout of all the remaining payments, it also makes it easy to determine what you are receiving.
For example, if you are offered $85,316 for a $100,000 balance mortgage note, you are selling the note at a $14,684 discount. That may sound like a lot, but you now have $85,316 up front rather than waiting over time to collect payments.
The part that gets a little tricky is when you are offered partial purchase options. “Partials” are just what they sound like; someone is buying a portion of the remaining payments, but not the whole note. Let’s go back to our example.
Let’s say the note is for $100,000 at 10% interest amortized over 30 years. That would give you payments of $877.57 for 360 months.
An investor may offer to purchase the next 180 months for say, $73,120* That means that AFTER the 180 months (or 15 years) go by, you get the note back. You can then sell another 180 months or you can go back to receiving the remaining monthly payments.
*(Examples assume the investor wants a 12% return on their money and that the note continues to perform).
The investor may also offer to buy a partial of the next 60 months for say, $39,451. That means AFTER the 60 months go buy, you get the note back and start receiving the monthly payments again in 5 years.
So which is better for the seller?
The basic rule of thumb is to avoid selling any more of the note than you absolutely need to (assuming you want to minimize discount and keep the most money in your pocket over the long haul).
The “Full” offer was $85,316 – but that is all you get. Even if you split the note and sold 180 payments now and then the remaining180 payments in 15 years you would realize $146,240 ($73,120 X 2) over time.
Remember, payments due in the future are worth less today. As you get closer to them, they become worth more. If you could sell 180 payments for $73,120 that means the LAST 180 payments were only worth $12,196 today. You may want to hold off on selling that full unless you really need that extra $12k now!
Looking for more information about Full and Partial note purchase offers, including how to protect your right to future payments? Check out….