Why is there a discount when I sell my mortgage note?

When you sell a mortgage note, you trade future payments for cash today. The buyer waits years to recover their investment, so they pay less than the unpaid balance to earn their target return. The discount is the time value of money it applies to every note, even the safest ones.

How is the discount on a mortgage note calculated?

The discount is determined by the buyer's required yield, the note's interest rate, the remaining term, and the borrower's pay history. A buyer needing a 10% return on a 15-year note will pay roughly 78 cents on the dollar of unpaid balance for a clean performing note and less for higher-risk notes.

Does the discount mean my mortgage note is bad?

No. Every note sold on the secondary market is discounted, regardless of quality. The discount reflects the buyer's wait time and required return, not a judgment on the note. Even pristine performing notes from major banks trade at a discount to face value.

Can I get more for my note by selling part of it instead of the whole thing?

Yes, a partial sale lets you sell the next several years of payments while keeping the back end. Because the buyer's wait is shorter, the discount on the partial is usually smaller. Many sellers prefer partials when they need only a portion of the note's value in cash.

How long does it take to close a mortgage note sale?

Once the tape and clean title are received, 14-21 days is typical. Tight files with seasoned pay history can close in as little as 7 days. The timeline depends on title work, payoff letters, and assignment recording in the property's county.

Why Is There a Discount When You Sell a Mortgage Note?

The short answer: your note is worth what someone will pay for it today — not what it’ll pay out over 20 years. Here’s the math, in plain English.

The 60-second answer

When you sell a mortgage note, you’re trading a stream of future payments for a lump sum of cash today. Anyone buying that note has to wait years to get their money back. They charge a discount to make the wait worth it. Discount mortgage notes aren’t bad notes — they’re notes priced for the time value of money.

It’s the same reason a $1,000 lottery ticket paid out over 20 years is worth less than $1,000 cash today. Time has a price.

A mortgage note that promises $100,000 in payments over 15 years won’t sell for $100,000. It’ll sell for whatever amount, invested somewhere else at the buyer’s required return, would grow back to $100,000 over 15 years. That number is almost always smaller than the face value.

That’s the discount. It isn’t personal. It isn’t a lowball. It’s how every note buyer in the country prices every note they see.

A real example with real math

Let’s say you’re holding a note with these terms:

Unpaid balance: $80,000
Interest rate: 6%
Remaining term: 15 years (180 monthly payments)
Monthly payment to you: about $675

If you held the note to maturity, you’d collect roughly $121,500 total over 15 years. Big number. Sounds great.

Now a note buyer looks at the same note. They want to earn 10% per year on their money — that’s their target return after costs and risk. To earn 10% on $X over 15 years collecting that same $675/month, the buyer can only put about $62,800 in today.

So your $80,000 note sells for about $62,800. That’s roughly a 22% discount off the unpaid balance.

You’re not losing $17,200. You’re trading a 15-year wait for cash you can use this month.

What actually drives the discount up or down

Three things move the number more than anything else:

1. The buyer’s required return (yield). A buyer who needs 8% pays more than one who needs 12%. Yields move with interest rates. When the 10-year Treasury rises, yields rise, and discounts get bigger. When rates fall, the opposite.

2. The borrower’s payment history. A note where the borrower has paid every month for 5 years (a “seasoned performing note”) sells at a smaller discount than one with two missed payments last year. Risk = required return = discount.

3. Property and paperwork.

Is the property worth more than the loan balance? Lower risk, smaller discount.
Is the recorded mortgage clean? Title issues add cost and risk → bigger discount.
Where is the property? Some states have faster foreclosure timelines than others, which affects how quickly a buyer can recover capital if the borrower stops paying.

Why “I’ll just hold it” sometimes still loses

Holding a note feels safe — payments come in every month. But there are real costs that don’t show up on the amortization schedule:

Servicing: someone has to collect, deposit, file 1098s, send late notices. If you self-service, that’s your time. If you hire a servicer, that’s $20-30/month per loan.
Tax surprises: did the borrower pay property taxes this year? Insurance? If not, you may end up paying them to protect your lien.
Default risk: every month is a chance the borrower stops paying, dies, or files bankruptcy. The longer you hold, the more chances stack up.
Illiquidity: if you need cash in 12 months, a note isn’t a CD. Selling fast means accepting a steeper discount than selling unhurried.

A discount today exchanges all of those headaches for someone else. Whether that’s a good trade depends on your situation.

How JKP prices notes

We use the same three inputs every buyer uses:

Unpaid balance, rate, remaining term — the math piece
Pay history (12-24 months) — the risk piece
Property value + state foreclosure timeline — the recovery piece

We run those through our underwriting model and quote you a range — not a single number — because the final offer depends on the tape review (the legal docs and pay history). The range is honest.

If you’d rather just talk to a human, request a quote here — we usually respond same business day.

Common questions

“Is the discount because you think my note is bad?”
No. We discount every note we buy — performing, non-performing, brand new, decades old. The discount is the price of converting future payments to today’s cash. It applies even to the safest, cleanest notes in the country.

“Can I get more by waiting for rates to drop?”
Maybe. Lower interest rates → lower required yields → smaller discounts. But you’re betting on a rate move, and rate moves are unpredictable. If you need cash now, the cost of waiting (servicing, default risk, life happens) usually outweighs the potential discount improvement.

“What if I sell only part of the note?”
You can. A “partial” sale means you sell, say, the next 5 years of payments and keep the rest. You get cash now AND keep the back end. Discounts on partials are usually smaller because the buyer’s wait is shorter. We do these regularly — ask about it on your quote.

“Does the discount include your fees?”
Yes. JKP’s quote is the all-in price. No closing fees taken out of your number. What we offer is what you receive at closing.

“How long does it take to close?”
Once we have the tape and clean title, 14-21 days is normal. We’ve closed in 7 when the file was tight.

“How do I know if a note offer is fair?”
Get two or three quotes. A fair offer for a performing first-lien note should land within 5–10 percentage points across reputable buyers. Wide spreads usually mean one buyer is fishing — or that one of them spotted a risk the others missed. Either way, ask each buyer to show their yield assumption.

Want a real number on your note? Request a quote — we’ll respond within one business day.