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Expert Answers to Biz Questions
Listen in! Pick up some expert advice to a reader's question that we selected from CyberSchmooz.
There's Cash Value In Your Mortgage Note
There are mortgages, and there are mortgage notes. While the two terms are used interchangeably in real estate transactions, there are significant differences. When you need money, you just might want to sell your mortgage note.
A mortgage VS. a mortgage note
A mortgage transfers property. It's not a promise, but rather is a grant that allows the mortgagor lender to reclaim the property if you do not pay as agreed. A mortgage is signed by the property owners and recorded at county or other compliance offices.
A mortgage note is a promise to pay according to specified terms, such as monthly payments of capital and interest for 15 years. Where the mortgage is signed by the property owners, the note is signed by parties to the debt. If the borrower does not pay, the lender will sue for breach of contract.
Reasons to sell your mortgage note
Because the mortgage note is not attached to the property, the party holding the note may choose to sell the interest in the promise. For one thing, a sale will secure a cash lump sum to replace an unpredictable future.
Selling the mortgage note also sells the risk involved with "promise," and the problems attached to foreclosure. The resultant cash can reduce or eliminate other debts with high interest rate.
The sale puts the seller in a strong cash position to reinvest in property or other purchases. In fact, timing the sale in the context of current market interest rates could be a net gain.
If you're wondering, "When and how do I sell my mortgage note?", AmerinoteExchange says, " It only takes a little research and some patience which will put you in a position to receive top dollar for your debt instrument when you sell your mortgage note.
How to value your mortgage note
There is an economic theory called "time value for money." According to Harvey S. Jacobs, writing in The Washington Post, this theory "controls how much you should be willing to pay for a private mortgage note. This concept dictates that receiving a dollar today is worth more than receiving a dollar in the future."
So, the price you place on the sale of your note must meet that buyer's market. That market will determine the value of your note. It considers the interest rate and length of the payback period. Effectively, it will offer the present value of future payments.
Looking to do it right?
You'll need a licensed mortgage broker or note exchange. As Kristie Lorette says in Chron.com, "Because mortgage brokers have a pool of business from which to choose, it is a much easier way to find a note buyer than trying to go it alone."
With the third party mortgage broker or note exchange at work, you can let them negotiate the terms. The exchange may buy the note outright and sell it on their own terms when they have a buyer. Or, the exchange may set up seller and buyer to make the best deal negotiated.
The exchange pulls together all the necessary documents, secures the signatures, and sets up an escrow account where the money is transferred.
Why now?
There is an inverse relationship at work between the interest on individual notes and the current bank interest rates. When bank rates are low (as they are now), the value of your note increases, and when the rates increase (as they are about to do), the market value of your note goes down.
If you are interested in selling your mortgage rate, the time to do it now. However, selling a note is not something to do lightly or quickly. Go into process with a clear head by trying nootropic such as an alpha brain supplement. While it can be a great way to get cash for a worthwhile purpose such as financing your daughter's wedding, you should not use it something that you can hold off buying, such as a pet portrait. This step requires wisdom and professional advice.
Author's Bio
Michael F. Carroll
Title: Freelance writer at OutreachMama
Mike Carroll is a freelance contributor to Towering SEO and OutreachMama who helps businesses find their audience online through research, content copy, and white papers. He frequently writes about management, marketing, and sales with customized outreach for digital marketing channels and outreach plans depending on the industry and competition.
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