How Is a Mortgage Note Valued? The Inputs That Set Your Offer
Two notes with the same balance can get very different offers. Here is what a buyer looks at and which way each input pushes the price.
How is the value of my mortgage note determined?
A mortgage note's value is built from seven inputs: the unpaid principal balance, the interest rate, the remaining term, the payment history, the property's current loan-to-value ratio, the borrower's credit profile, and how long the note has been seasoned. The buyer then works back from a target yield to arrive at a purchase price.
In plain terms: the safer and better-paying the note looks, the smaller the discount from what you are owed.
The Inputs and Which Way They Push the Price
| Input | Helps your offer | Hurts your offer |
|---|---|---|
| Payment history | A long run of on-time payments. This is the biggest single driver | Late or missed payments |
| Interest rate | A rate above today’s market. Future payments are worth more | A rate below today’s market |
| Loan-to-value | Low. More equity in the property means a safer note | High. Little equity behind the loan |
| Remaining term | Shorter. Less time for things to go wrong | Longer |
| Seasoning | A note that has been paying for a long time | A brand-new note with no track record |
| Borrower credit | Strong credit profile | Weak credit profile |
| Unpaid balance | Sets the starting point every other input adjusts | n/a |
Position and Collateral Matter Too
First-lien performing residential notes generally price highest. Second-lien notes and commercial notes generally price lower, and non-performing notes price lowest. See how non-performing notes are priced.
How the Buyer Gets to a Number
A buyer decides what return is needed to take on the borrower’s risk, the property’s risk and the wait for the money. The price is what the future payments are worth today at that return. A safer note needs a smaller return, so it gets a smaller discount. That gap is the discount, and it is not a fee. Read the longer version in why notes sell for less than face value.
The Property's Value
Because the property is the collateral, buyers check its value, often with a broker price opinion (BPO), which is a real estate professional’s estimate of what the property would sell for, or with an appraisal. The note is a debt, and the property is what stands behind it.
Talk to a Direct Note Buyer
JKP Holdings has bought notes since 2010 and has transacted hundreds of them. We buy directly in 17 states and place notes in other states through our buyer network, so any state is considered. There are no upfront fees, and you get a free written offer within 24 hours.
Common Questions
What matters most when a buyer prices a mortgage note?
Payment history is usually the single biggest driver. A long run of on-time payments moves a note toward the top of the offer range.
Why do two notes with the same balance get different offers?
Because the balance is only the starting point. Interest rate, remaining term, payment history, loan-to-value, borrower credit and seasoning each change how risky the payments look.
What is a BPO?
A broker price opinion is a real estate professional's estimate of a property's value. Note buyers often use one, or an appraisal, to check the collateral behind the note.
What does seasoning mean?
It is how long the note has been paying. A more seasoned note has a longer track record, which lowers the buyer's perceived risk.
Can I do anything to raise what my note is worth?
Sometimes. A clean, complete file and a documented payment history help. See our guide to what makes a note valuable.
Does it cost anything to have my note valued?
No. JKP Holdings gives a free written offer within 24 hours, with no upfront fees.
