Seller-Held Mortgage Notes: a Way to Insulate Yourself from the Chaotic Market

Summer 2009 is a chaotic time for the mortgage market. Rates keep bouncing up and down. Investors and consumers are both waiting for the real estate market to recover and jumped on the slightest sign of market health. Then of course, the Fed releases indicators and other statements that are more cautious, and the market responds with a mini-panic.

It‘s a confusing environment. For example, on July 23rd Freddie Mac said US Mortgage rates would rise - and on the same day, Federal Reserve Chairman Ben Bernanke said the central bank would keep them down. So which is it?

If you‘re selling through a bank or similar lending institution these fluctuations are a fact of life. Fortunately, there are other options. Seller financing returns control of the situation to you. Instead of investor fads and federal indicators you can offer a loan with flexible, reasonable terms. For example, you can arrange for balloon payments and other arrangements that give the borrower an opportunity to pay his or her mortgage off quickly. This is especially popular now, when debt-laden Americans don‘t want to take on long term debt.

Naturally, you can‘t completely ignore the housing market. It sets basic expectations for costs, rates and conditions. You can set conditions that bring you an acceptable income stream even in a buyer‘s market, but in that case you need to reach out to people who wouldn‘t be able to get the financing they want from traditional institutions. Strike a balance between your interests and theirs, but always within a prudent framework. Get a real estate lawyer and fully investigate prospective borrowers.

You also need to be committed to managing the mortgage note for its duration - well, not necessarily. While you should always plan to manage the note for the full term there are options if you‘d like to either simplify your finances or improve your immediate cash flow. Contact us for a free mortgage note quote. If your seller-held note is in good standing we may be able to purchase it for a substantial payment.