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A mortgage note is a promissory note that holds the borrower responsible for repayment of debt and its associated interest in a timely manner. It is a very powerful document that can either be used to earn a steady stream of monthly income at an interest rate that is usually higher than what you can get at any bank or it can be sold to meet your immediate cash needs.

Like any other investment, there is a risk involved in this transaction as well. The mortgage note buyer forecasts, projects, and offsets some of the risk by obtaining the borrower's credit score, appraising the property for it's current value, and verifying the equity in property before quoting on any mortgage note.

There are a few options to choose from when you decide to sell your mortgage note.
To better understand the choices, here's an example of a note with the following attributes:

Note Balance: $100,000
Interest Rate: 10%
Remaining Term: 120 months
Monthly payment: $1,321.51

Full Purchase

When the note seller sells all the remaining monthly payments of $1,321.51 on a mortgage note, it is considered a full purchase. As a result, the seller is free of all the responsibilities and risks associated with being a lender. However, the full purchase offer will be at a higher discount as compared to the other options since the mortgage note buyer is undertaking a great risk of decreasing property values over time, non-payment, and foreclosure.

Partial Purchase

When the note seller sells the next 60 monthly payments of $1,321.51 to an investor, it is considered a partial purchase. After 5 years (60 months), the note is reassigned to the seller who would then collect the remaining 60 months worth of payments from the borrower.

Split Partial

When the monthly payment amount is split between the note seller and the investor, it is considered a split partial. In this example, the investor might purchase 700 worth of monthly payments for 120 months, whereas the note seller would still receive 621.51 every month.

The partial and Split Partial purchase offers can minimize the discounts due to a lower risk to the investor. Moreover, these options can give the seller the flexibility to get cash on an as needed basis and still enjoy a steady income stream when the note is reassigned to them.

Hence, the best way to sell your mortgage note should be determined by the cash need and the appetite and willingness to undertake risk associated with owning a mortgage note.

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