Your mortgage note is worth what a buyer will pay today for the payments still to come. That figure falls below the balance owed whenever the buyer needs a higher return than your note’s interest rate pays. How far below depends on the rate, the time left, the payer’s record and the property behind the note.
One note, priced
| Monthly payment | $1,140 |
|---|---|
| Payments left | 168 (14 years) |
| Interest rate on the note | 6% |
| Balance still owed | About $129,400 |
| Yield the buyer needs | 8% |
| Price for the whole note | $115,000 |
| Discount | $14,400 (11.1% of the balance) |
Illustrative example. It shows how the pieces fit together and is no forecast of what your note will sell for.
The buyer here starts from the yearly return they need on their money, known as the yield, and works out the highest price at which the payments still deliver it. At $115,000, 168 payments of $1,140 return 8% a year, by the calculation note buyers use to reach a price. The gap between that price and the balance is the discount, and changing any line in the table changes it.
Why the balance alone will not tell you
Two notes with the same balance can sell for very different prices, because what a buyer purchases is a series of future payments together with the risk that some of them never arrive. That is why no lookup table turns a balance into a value.
People also mix up the balance with two other figures. The balance is the principal your payer still owes, and it is where pricing starts. The total of the remaining payments is larger: in the example, 168 payments of $1,140 add up to $191,520, which includes interest you would earn only by waiting 14 years. The price is what a buyer pays today, $115,000 in the example.
Offers are often quoted as cents on the dollar, meaning the price divided by the balance, which comes to about 89 cents here. The shorthand is handy, but it hides the yield behind the offer, so ask for both.
What moves your number
| Factor | Raises the price | Lowers the price |
|---|---|---|
| Interest rate on the note | Higher | Lower |
| Time left | Shorter | Longer |
| Payment history | Long and on time | New, or with late payments |
| Payer’s credit | Strong | Weak or unknown |
| Equity in the property | Large down payment, balance well below value | Little down, balance close to value |
| Lien position | First | Second or later |
| Property | An owner-occupied house in good repair | Vacant land, or a property that is hard to resell |
| Documents | Complete and recorded | Missing or unclear |
Lien position is your place in line if the property is sold to pay its debts, and a first lien is paid ahead of any other loan. Equity is the part of the property’s value that nobody is owed.
The rate and the time left are arithmetic: a low rate and a long term mean the buyer waits longer for a smaller return, so they pay less. The other rows are judgments about risk, and buyers do not all judge alike. Each factor has its own page in the guide to what your note is worth.
If the whole-note price feels low
You may be able to sell some of the payments and keep the rest. In the same example, the next 60 payments sell for $56,200, and the note comes back to you with about $94,950 still owed. The two routes are compared in partial vs full sale, side by side.
Keeping the note is a real option as well. If you do not need the cash and the payer is reliable, holding it brings in the most money in total, for as long as the payments keep coming.
What a buyer needs before they can price yours
- The monthly payment and the interest rate
- The number of payments left, and any balloon
- The property’s address and what kind of property it is
- A rough account of the payment history, including any late payments
With those in hand you can request a price for your note and see the yield and the discount behind each figure that comes back. If one of the four is a rough figure, say so, because a first price is only as firm as the details it was built on.
Related questions
Can I work out my note's value from the balance alone?
No. The balance is only the starting point. Two notes with the same balance can sell for different prices because their rates, terms, payers and properties differ. A buyer needs the payment, the rate and the number of payments left before a price means anything.
Is there an online calculator that gives my note's price?
A present value calculator will show what your payments are worth at a yield you choose. It cannot tell you what yield a real buyer will ask for on your note, and that is the part that sets the price.
Does it cost anything to find out what my note is worth?
No. We do not charge for a quote, and asking for one does not commit you to selling. The yield and the discount are written out with each offer, so you can check the figure yourself.