What to consider when selling your note
Advantages of selling your note
As the owner of the note of a home’s mortgage, you have the advantage of receiving a monthly check for that loan. You also receive interest on the loan over its life, which is typically thousands of dollars in profit. So the question may arise: why would you ever sell your mortgage note to someone else? It’s a fair question. There are many advantages to selling a mortgage, and there are losses that should also be considered. As with any business transaction, do your research and calculations before you decide what’s best for you. Something to keep in mind is the fact that someone may want to sell their note not necessarily for financial gain, but because they want to retire and be done with the loan altogether.
The cash trade-off
One thing to remember when you sell a mortgage is that you won’t get paid a cash amount equivalent to the note’s value. This is because the buyer needs to make a profit off the sale. In turn, you forfeit some of that value against the opportunity for immediate cash. It can be financially advantageous to sell a note when you need money for another business venture, or for something as mundane as paying down some debts to avoid interest charges and fees. The financial tradeoff of the cash you get when you sell a mortgage versus the value of the note is something you must consider. You must decide whether the advantages and disadvantages merit the sale.
Intangible benefits of selling your note
When you sell a note you have certain advantages that cannot be measured in simple financial terms. For example, what if someone defaults or walks away from their mortgage? The legal processes that follow are typically lengthy, difficult and expensive. Not to mention all the time wasted in the process. Having cash in hand when you sell a mortgage and being able to avoid the risk of default can be worth the few dollars you will lose through the sale. You might want to speak to a lawyer or financial advisor at the start of the process. He can assist you with understanding the terms, conditions and profits you will concede in exchange for the instant cash. They can also advise you on current mortgage industry risks. A good advisor will check on other business ventures you’re considering in relation to the mortgage note you’re considering selling. After all, an informed decision is always the right choice.