Buying mortgage notes

How mortgage notes are priced

Updated 2026-10-19

A note's price is the present value of its remaining payments, discounted at the yield the buyer wants. Higher risk means a higher required yield, which means a lower price. That's why notes usually sell for less than their unpaid balance.

The math in one paragraph

Take every remaining payment, including any balloon, and ask what each is worth today if you need to earn a certain annual yield. Add those up and you have the price that delivers that yield. If the yield the buyer wants is higher than the note's interest rate, the price comes in below the balance. If it's equal, the price equals the balance. If it's lower, the price can exceed the balance, which is rare for private notes.

A worked example (illustration only)

Suppose a note has a $100,000 balance at 7% with 180 monthly payments left. The payment works out to about $899. Here is what those payments are worth at a few illustrative yields. These yields are examples for the math, not market rates:

Yield used	Present value of the payments	As % of balance
7%	about $100,000	100%
9%	about $88,600	89%
11%	about $79,100	79%

You can run your own numbers in the note value estimator.

What pushes the required yield up or down

Payment history and seasoning: a long on-time record lowers perceived risk.
Equity / loan-to-value: more cushion in the collateral lowers risk.
Borrower credit: stronger credit lowers risk.
Lien position: first liens are safer than second liens.
Collateral type and location: buyers have preferences, and some property types are harder to resell.
Remaining term: longer streams carry more uncertainty.
Documentation: gaps add risk and cost.

Partial purchases change the math

If a buyer purchases only the next set of payments, say 60 of 180, they discount just those payments. The seller gets less cash now but keeps the later payments. Comparing a full and partial offer means comparing cash today plus the value of what you keep.

Questions

Why would anyone sell a note for less than it's worth?

Because cash today and the transfer of risk have value. A holder who needs a lump sum, or doesn't want to wait years or worry about default, may prefer a discounted price now.

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Educational information only, not legal, tax or investment advice. Laws and practices vary by state and situation, so talk to a qualified professional about yours. CashForMyNote.com does not buy notes. Affiliate disclosure.