Private mortgages are considered negotiable instruments which means they carry the option of being purchased or sold just like stocks and bonds or other similar investments. The seller of the private mortgage can receive a lump sum of cash to reinvest for larger returns.
In the event that a private lender needs to exit a private mortgage before the loan matures, there are many companies out there that specialize in purchasing private mortgages. As buyers of private mortgages they usually purchase the loan at a discount which is less than the amount of the principal. This provides the buyer with the advantage of being able to collect the interest on the note as well as earn a profit on the principal.
Selling a Private Mortgage: To sell a private mortgage, the private lender is required to present a copy of the promissory note to the company that is buying the note along with the mortgage, proof of insurance, and disclosure. The company then reviews the terms of the private mortgage as a basis for calculating the return on investment (ROI). The review includes the length of the promissory note as well as the type of property secured by the mortgage, and then this information is weighed against the current market conditions.
Considerations: Other considerations by loan sale companies include the value of the property, the credit history of the borrower, current balance and interest rate, and the number of payments that remain on the mortgage note. Some loan sale companies will provide the private lender with several alternatives regarding the sale of a private mortgage.
Customized Options: There are loan sale companies that will provide private lenders with customized options for selling a private mortgage note. The best way to pursue a customized sale is to provide the loan sale company with as much information about the mortgage note as possible because this will help you receive the highest sale price for the note. The loan sale company can then provide you with sale options that include one of the following:
- The company can purchase all of the remaining payments on the private mortgage note which provides the private lender with a lump sum of cash as well as immediate relief from the investment. It also frees the private lender from any problems that may occur with the mortgage after the sale.
- The company purchases a percentage of the mortgage payments to provide the private lender with a designated amount of cash in their pocket. Essentially the seller is only selling off enough mortgage payments to raise the amount of cash they need.
- The company can purchase a small portion of each monthly mortgage payment which allows the seller to receive a lump sum of cash and at the same time maintain a monthly cash flow for expenses.
Usually for customized options on the sale of a private mortgage you will also have to verify the actual owed amount on the part of the borrower as well as the current property value and appraisal.