Every day I speak to mortgage note sellers about selling their mortgage notes, deeds, or land contracts, and the conversation always turns to the possible recession (are we already in one, or is one coming?) and the rise and fall of interest rates. It is on many people’s minds in the real estate industry. ‘How will it affect my mortgage note’ is a common question.
If you have sold a property or land using owner financing and are carrying back the note, selling that real estate note now may be in your best interest. Why? Let’s dive into it.
1. Your borrower may not qualify to refinance and maybe they will not want to. If you wrote their note at an interest rate, like 8% or lower, their incentive to refinance is much lower. At the time of this being published mortgage rates are at 5.9 and are expected to increase a few more times before the end of 2023. So the longer you hold onto your note, the lower are your chances of a full payoff.
This is especially concerning if you have a balloon on the note. Will your borrower qualify to refinance or will you need to extend the note’s maturity date. Not many borrowers have the means to make a large balloon pay-off just sitting in their bank accounts!
2. If you are a real estate investor, fix and flipper or doing buy and holds, your cost of borrowing money is going up. Banks and hard money lenders are increasing their interest rates and points to keep up with the market. So if you didn’t already secure your HELOC, the numbers might not make sense for your yield. Tapping into the cash locked in your note is a pretty good option. Especially if you wrote the note at a low interest rate. Your next deal can be written at a 10-12% interest rate, which is very common for seller carry back loans.
3, Your money is worth more now than it will be in the future. Here is an example that we can relate to: how far would $100 go at the grocery store today compared to 20 years ago? The basket wouldn’t be nearly as full, right?
If you take your cash today instead of monthly payments your money will be more valuable. Especially if you use it wisely!
Being the note holder, you are in the drivers seat. If your borrower stops paying you have options and when you want to cash out and sell your note, the decision is yours. At Sand Dollar Notes we help make the process easy and stress-free. We always strive to get your the best pay-out possible. If you would like more information on how to sell your mortgage note, please reach out anytime.
For a free no-obligation quote on your mortgage note call Sand Dollar Notes 559-648-3669 or fill out the Online Note Quote.