Most people who call us to sell their mortgage note are unaware that they can also sell the entire note (all remaining payments). Bank loans are available for the full amount of the loan, no matter how large or small. Although selling your entire note is an option, it is not always the best.
Note holders may not be able to sell their entire mortgage note if they are in a difficult economic situation or have difficulty getting a fair price. Private mortgage note buyers such as us are more worried than usual about certain notes regarding defaults and declining property values. As always, future payments are less valuable than those collected earlier in dollars today and are therefore more risky.
What do you do if a note buyer won’t buy your entire note? Or maybe you want to keep a portion of the note? A partial sale is often a good option. There are many types of partial sales. The most common is to sell your immediate payments now and then receive the rest later.
If you have a 30-year (360-month) mortgage, you can choose to sell only five years (60 monthly) of your payments and keep the remaining 25 years. Although you would get less upfront than if you sold the entire note, you will make more overall. This is an example of owner financing for a home that has been sold.
Sales price: $125,000
Down payment: $ 25,000.
Original note balance: $100,000
Terms: Terms of contract for 30 years at 7% interest and $665.30/month
You could get $32,049.65 upfront, and then another $199,590.00 over the next 60 years. This totals $231,639.65. This is not an “apples to apples” comparison. You receive money now and some later. Even after taking into account the time value money, a partial sale could still be a better option than a full sale.
Partially selling the front-end payments can be like having your cake while you eat it. The note will be returned with a large amount of principal and uncollectible payments. You receive a substantial chunk of money now. The balance in the above example would be $94,131.59 if you got the note back.
Apart from the fact that you will collect more money overall, there are other benefits such as a delay in capital gains taxes or the ability to sell additional notes in the future, if necessary. A partial is generally a better option.