What Makes a Mortgage Note Valuable? |
| One of the most common questions we get about seller held mortgage notes is what factors come into play to determine their value. We often get this question when the note is part of an inheritance or other situation where the lender isn’t the person who originally arranged the note, but even people who were there from the start can get confused as to what really matters when it comes to valuing their note. |
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| There are a large number of variables to consider, some of which require real estate expertise to truly comprehend. Nevertheless, the following elements are almost always important. |
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| Borrower Creditworthiness: Obviously, confidence in the borrower’s ability to make payments is one of the, if not the main thing that determines a note’s value. As we’ve said in past articles, you must be diligent in establishing creditworthiness. While you don’t have to use the same criteria as the banks, you should be certain that your borrower will make prompt payments. |
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| Lien: The note’s priority among all collateralized debts is critically important, as if the number of instruments backed by the note’s property. If you want to sell your mortgage note you should ensure that the note is first lien, meaning that its obligations take precedence over others. |
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| Property Value: Property value is the basis of the loan, so it’s obviously of great importance in determining the note’s value. Look beyond just market value, however. Is the property in good repair? Is it properly insured? What’s the neighbourhood demographic, and how does that affect nearby sales? The total picture gives you a sense of not only how valuable the property is for the purpose of the loan, but your ability to recover value in the regrettable case of a foreclosure. |
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| Seasoning: Seasoning is the note’s payment history. On one hand, seasoned notes are considered to be valuable because they show a history of reliable payment: evidence of the note’s value. On the other, a well-seasoned note may not have much remaining debt attached to it and represents less total value to the recipient. |
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| Term Length: Shorter term lengths are considered to be more valuable if you plan to sell your note. A shorter term reduces losses from inflation over time. |
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| These factors and more come into play when it’s time to value your mortgage note, deed of trust, land contract or other instrument to sell or track as part of your investment portfolio. To see how much we might be able to offer to your mortgage note, contact us for a free mortgage note quote. |
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