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 insure 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.