# USASelling a mortgage

#### a1handy

I recently inherited a mortgage that my father was financing personally for some property he sold. I do not wish to receive monthly payments and want to sell the mortgage for a onetime payout. I have checked the note to see if it gives a specific time that can call the note due but it only states that I can do this if the note is late. It had never been late to this date. This is a 30-year mortgage with about 23 years left. I have checked with brokers about purchasing the note but I will lose thousands in doing so if I go through them. Please advise of any alternatives.

#### Drmdcpa

VIP Member
There are plenty of places that would buy the note. But you need to know what it is worth.

It is worth the present value of the income stream (present value of an annuity). It may sell at a premium if it is paying a higher interest rate than the market currently bears for such a risk, or at a discount if it is bearing an interest rate lower than what the market currently bears for such a risk.

I suspect when you say you are losing thousands if you sell, you are not taking into consideration the time value of money and relative interest rates.

#### a1handy

The interest rate on this mortgage is 4.7%. So far the best I have been offered is about 65% of the remaining principle. Do you have any suggestions of where I might look for someone reputable to assume this loan? Is there a way I can make the lenders to refinance if they have not violated the agreement?

#### Drmdcpa

VIP Member
Generally no you cannot force refinance if they are in compliance.

The time value of money dictates a dollar is worth more today than it is tomorrow. Thus if I am giving you money today I need to recieve more back tomorrow.

The formula is F = P * (1+I)exponentially raised to t. Where F = future value, P = present value, I = interest rate, and t = time periods (compounding periods) until F is recieved.

At 4.7%, \$1000 recieved at the end of the year is worth \$955 today. If the \$1000 is recieved at the end of two years it is only worth \$912. If the \$1000 is recieved in 23 years it is only worth \$347 today or 34.7%.

Since a mortgage is a series of payments, calculating the time value of the money can get complex. Spreadsheets and financial calculators often have functions for calculating the present value of an annuity stream. There are also charts that can provide certain factors to simplify the calculation.

If you were to promise to give me \$1000 at the end of each year for 23 years, at 4.7% with simple annual compounding, today that is worth \$13878.35 or 60.3% of the \$23000 you will give me.

Thus if they are willing to give you 65% it is because a premium is being included since 4.7% is slightly higher than current owner occupied mortgage rates.

There are many companies that buy mortgage and annuity streams. A simple internet search proves this.

#### bklynboy

VIP Member
Not clear by his description but I think he means he will lose on the principle balance not that he won't get the interest. That makes sense to me since to a third party there is default risk that anyone will take into account. Assuming loan balance is 200,000 for example - no one is going to pay that and will ask for an allowance for possible default given its a private transaction and likely done that way since borrower could not get loan from a bank. Interest rate determines discount/premium as well but I don't think thats what he means by loss.

A better option than going to a broker is to talk to the borrower. See if they will accept a lower principle balance (say 10% off) if they pay off the loan. They can go to a bank to refinance and get a discount on what they owe. You will get a better price than what any broker will offer.

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