Posted by John Behle on September 17, 2002 at 16:22:58:
In Reply to: Note seller question - Experts, please help posted by Lori on July 24, 2002 at 14:22:55:
Yes, notes sell at a discount. That takes into account the risk a buyer faces, the work they have to put into "due diligence" on the note and the "in-efficiency" of the note market.
Most true note buyers are private investors and small institutions. They demand and can get higher rates of return on their money than the "face rate" of the note. A typical note buyer invests at higher rates than the interest rate of the mortgage.
A note buyer usually can't raise the rate on a mortgage, so their only way to achieve a higher yield is to pay less for it. This process of discounting raises their effective yield. The discounted price they pay for a note is derived from putting the yield they desire into a calculator or computer and then solving for the "Present Value". It's a complex formula built into a financial calculator that then becomes quite simple to do.
In addition to the resources John Merchant mentioned, don't overlook the 61 articles here on this website and the excellent materials available here also.
- Re: Over 60 articles available here at www.papergame.com riccardo di tria 14:33:38 4/14/2003 (0)