Per dollar owed, yes. A buyer discounts each payment more the further away it is, so a note with fewer years left sells closer to its balance. In total dollars the shorter note often brings less, simply because there is less of it to sell.
Two meanings of “worth more”
Measured as a share of what is owed, a shorter note sells at a smaller discount, the discount being the gap between the balance owed and the price a buyer pays. Measured as a check in your hand, a longer note with the same payment has a larger balance, so its sale price in dollars is higher even though the discount is deeper. Which one you care about depends on whether you are judging the fairness of an offer or the amount of cash you need.
One note at four lengths
The site’s example note pays $1,140 a month and has 168 payments left. At a buyer yield of 8%, this is what a buyer pays for the first 36, 60 and 84 payments, and for all 168.
| Payments bought | Those payments add up to | Buyer pays today | Price as a share of the payments |
|---|---|---|---|
| 36 (3 years) | $41,040 | $36,400 | About 89% |
| 60 (5 years) | $68,400 | $56,200 | About 82% |
| 84 (7 years) | $95,760 | $73,100 | About 76% |
| 168 (14 years) | $191,520 | $115,000 | About 60% |
Illustrative example. The 8% yield is an assumption and the note carries a 6% rate. The share shown is the price divided by the total of the payments, which is a different measure from the discount on the balance.
Down the last column, the longer the stream of payments, the smaller the share of it a buyer pays today. The third column runs the other way, with the longer stream bringing the bigger check. These figures rest on one assumed yield, so to see what the length of your own note does to its price, send it to us for pricing.
Why distant payments are worth less
A buyer prices a note one payment at a time, marking each one down by the yield they need, their annual return, for every month they wait to receive it. A payment due next month is marked down once and a payment due in ten years 120 times over. Risk compounds in the same way, since a buyer can be fairly confident about the next couple of years and much less sure about year twelve. The payments at the back of a long note are therefore the ones a buyer pays least for, and a short note has fewer of them. That is most of how the remaining term affects your note’s value.
What else a short remaining term brings
An amortizing note that is well into its term has been paid down, which leaves more of the property’s value above the balance. Buyers call that cushion equity, and it is among the factors that decide what your note is worth whatever the term. Such a note also has years of payments behind it, and a long clean record supports the price by itself. And because a buyer’s money comes back sooner, a short note fits buyers who cannot or will not tie funds up for a decade or more, which can widen the field of bidders.
When short is not a strength
A note can be short because it ends in a balloon, a lump sum due on a set date in place of level payments to the end. The buyer gets their money sooner only if the payer can refinance or sell when the balloon comes due, and that doubt is the main part of how a balloon affects a note’s price.
A note with only a handful of payments left can also be too small to sell. A buyer’s costs for title work and review stay much the same whatever the size of the note, and at some point they eat most of what the remaining payments are worth. Collecting the last payments yourself is then the better choice.
If your note is long
The term of the note is fixed, but how much of it you sell is up to you. A partial sale is the sale of a set number of your next payments. From the buyer’s side it turns a long note into a short one, so you sell the payments that hold their value best and keep the ones a buyer would mark down hardest. Whether a partial can be done depends on the note, because the payments sold have to be worth enough to carry the buyer’s fixed costs.
Count the payments you have left before you open the partial purchases guide, because how many payments you should sell comes down to that number and the amount of cash you need.
Related questions
Should I wait until my note is shorter before I sell?
Waiting shortens the term and adds to the payment record, which both help the discount. It also means the balance is smaller, so the check is smaller, and you carry the risk in the meantime. If you do not need the cash, waiting costs you little.
Is there a note length buyers prefer?
It varies by buyer. Some want their money back within a few years, and others are set up to hold long notes. That difference is one reason offers on the same note can be far apart.
Can I shorten my note to make it worth more?
Only by agreeing new terms with the payer in writing, which they have no duty to accept. A partial sale reaches a similar result without changing the note, because the buyer only purchases the near payments.