A mortgage buyer purchases mortgage notes from lenders, offering a lump sum to the seller for the full amount of the borrower’s payment, but at a lower price. The buyer absorbs the risk and can offer creative solutions, but note holders should shop around for the best deal.
The term mortgage buyer means exactly what it sounds like. It simply refers to an individual or entity that purchases mortgage notes from lenders. Buying or selling a mortgage can 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 rather than collect periodic installment payments, selling the note to a mortgage buyer may be a good option.
You may be wondering why this option is a good deal for the mortgage buyer, if you have to cash in on an investment over time. The truth is that a mortgage buyer will offer the note holder less than the mortgage is worth, while still collecting the full amount of the borrower’s payment, thus making a profit. Since the buyer of the mortgage absorbs the risk in the transaction, the buyer sets the price.
A mortgage buyer can have very little risk if the borrower is trustworthy and the note has a fixed rate. However, if the payee has a questionable payment history, or the note has a variable rate, there is more risk involved. In some cases, a variable rate also has the potential to generate greater profit 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 gain further investment. A mortgage buyer may agree to purchase only a portion of the note, allowing the lender to obtain cash for a set number of payments. If a lender needs cash to buy another investment property, for example, it can sell ten years of payments to a mortgage buyer, but then resume collecting mortgage payments when that period of time has expired.
Note holders should check with several mortgage buyers before selling a note to ensure they receive the best possible deal. One mortgage buyer can offer much more money than others along with other benefits, such as absorbing some or all of the transaction costs.
Smart Asset.
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