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The term mortgage buyer means just what it sounds like. It simply refers to an individual or entity that purchases mortgage notes from lenders. Buying or selling a mortgage can prove to be a win-win situation for the seller and mortgage buyer alike. If the note holder prefers to collect a lump sum of money all at once instead of collecting installment payments on a periodic basis, selling the note to a mortgage buyer may be a good option.
You may be wondering why this option is a good deal for the mortgage buyer, if he or she has to collect on an investment over time. The truth is a mortgage buyer will offer the note holder less than the mortgage is worth, while still collecting the full payment amount from the borrower, thus turning a profit. Since the mortgage buyer absorbs the risk in the transaction, the buyer sets the price.
A mortgage buyer may have very little risk if the borrower is reliable and the note has a fixed rate. However, if the payee has a questionable payment history, or the note has a variable rate, there is more risk involved. In some cases, a variable rate also has the potential to create greater profit for a mortgage buyer if interest rates rise, especially if they continue to increase.
A mortgage buyer may offer creative solutions that allow lenders to use notes more effectively in garnering further investments. A mortgage buyer may agree to purchase only part of the note, allowing a lender to obtain cash for a set amount of payments. If a lender needs cash to purchase another investment property for example, he or she may sell ten years worth of payments to a mortgage buyer, but then resume collecting payments against the mortgage when that time period has expired.
Note holders should inquire with several mortgage buyers before selling a note, to ensure that they receive the best deal possible. One mortgage buyer may offer far more money than others do along with other benefits, such as absorbing some or all of the transaction costs.
You are right on point. Mortgage buyers provide liquidity to lenders that have money tied up in notes secured by real estate such as a private mortgage, land contract or trust deed. Selling a note allows lenders to pay off debt or make other investments.
In some cases, selling a mortgage note can provide for the private lenders retirement. It is important to look for experience when shopping for a mortgage note buyer. There are a lot of new brokers out there who have no clue what they are doing. It seems there are late night TV infomercials selling the note business as a get rich quick program.
These types of brokers will list your note for sale on the
open internet where it is sometimes shopped by other note brokers. This can lower the value of your offering making it look less than desirable or like you are desperate for cash. Not all note buyers are equal, it pays to look for a buyer that has been in the business for some time.
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