A mortgage buyer purchases mortgage notes from lenders, offering the note holder less than the value of the mortgage. The buyer absorbs the risk and sets the price. They can offer creative solutions, such as purchasing only a portion of the note. Note holders should shop around for the best deal.
The term mortgage buyer means just what it sounds like. It simply refers to an individual or entity that purchases mortgage notes from lenders. Buying or selling a mortgage can prove to be a win-win situation for both the seller and the buyer of the mortgage. If the note holder prefers to collect a lump sum of money all at once instead of periodically collecting installment payments, selling the note to a mortgage buyer may be a good option.
You may wonder why this option is such a good deal for the mortgage buyer, if they are to collect on an investment over time. The truth is, a mortgage buyer will offer the note holder less than the value of the mortgage, while still collecting the full payment amount from the borrower, thereby making a profit. Because the mortgage buyer absorbs the risk in the transaction, the buyer sets the price.
A mortgage buyer may have minimal risk if the borrower is reliable and the note has a fixed rate. However, if the payee has questionable payment history or the note has a floating rate, the risk is higher. In some cases, a variable rate also has the potential to create greater profits for a mortgage buyer if interest rates rise, especially if they continue to rise.
A mortgage buyer can offer creative solutions that allow lenders to use notes more effectively to raise additional investment. A mortgage buyer may agree to purchase only a portion of the note, allowing a lender to get cash for a certain amount of payments. If a lender needs cash to buy another investment property, for example, he can sell ten years of payments to a mortgage buyer, but then resume collecting payments against the mortgage when the time period is up.
Note holders should inquire with several mortgage buyers before selling a note, to ensure they are getting the best deal possible. A mortgage buyer may offer significantly more cash than others along with other benefits, such as absorbing some or all of the transaction costs.
Smart Asset.
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