Effect Of Amortization Period On The Price Of A Note

2012 January 24

Many note holders wanting to sell a note don’t understand the effect long amortizations have on the value of their note. To illustrate, I often ask them if I offered them $1,000 or $2,000 in 20 years, which would they prefer. I’ve never had anyone take the larger amount. Here is a notes buyer live example. I quoted a note seller that wanted to sell a note with two scenarios. One is with his balloon as is, which occurs in just over 2 years and the other is if we have to take the balloon out so it amortizes over the full 30 years due to poor credit of his borrowers where we can’t refinance them. We aren’t interested in owning the property. The difference was incredible. The quote with the balloon was over $20,000 higher. If I owned a note with a 30 year amortization and no balloon, I’d try to revise the note before selling it so as to have a balloon in 5 years even if I had to lower the interest rate to incent the borrower but that’s just me. If you have any questions about note selling, give us a call @ 1-877-655-5625. Ask for Ron.

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