Rising Mortgage Rates Affect Selling a Mortgage Note

Abby Shemesh
March 6, 2018

selling a mortgage note

Mortgage rates have been rising steadily over the past few months, hitting a new high as of this month. How does this play into the narrative if you are planning on selling a mortgage note? If predictions about future Fed rate hikes ring true (and newly appointed chair Jerome Powell and the Federal Open Market Committee raise rates four more times this year), it seems we’re only going to see that trend continue through the rest of 2018.

But the news isn’t all doom-and-gloom.

Though rising mortgage rates (currently at a four-year high as of March 1, 2018) certainly don’t bode well for the average American homebuyer, they do offer a prime opportunity for note holders – particularly those holding seller-financed mortgages.

Rising Rates: The Sign That Now is the Time to Sell

If you’re even considering liquidating a mortgage loan in the near future, the market’s recent rising rates, coupled with expectations for more hikes over the next 12 months, signal that now’s the time to pull the trigger.

As rates go up, seller-financed transactions are going to rise. With more hoops to jump through and more stringent qualification requirements to deal with, home buyers are going to avoid traditional banks and lenders and look for alternative, more flexible ways to finance their home purchases – i.e. seller financing opportunities.

Like with anything in this realm, this will have a trickle-down effect. The more seller-financed mortgages that occur, the more those sellers will start to sell off their notes, and we’ll soon have a market overwrought with note opportunities. As the law of supply and demand dictates, too much supply and not enough demand will drive down prices – and note sellers will no longer get top-dollar for their holdings.

Luckily, those effects are months down the road, and the trickle-down impact will take a while to grab hold. So for note holders who want to maximize their returns or those who simply know that selling is inevitably on the horizon, now is the time to act.

selling a mortgage note

When is the Right Time to Sell Your Note?

There are a lot of factors you’ll want to consider when timing your sale. Internal ones, like your current financial needs or investment goals are big ones and should always guide your overall strategy as a note holder. But external ones, like trajectory of mortgage rates, the market and note supply levels are also major influencers – particularly on the price you can expect your note to garner.

Balancing these two elements is hard, so take a step back and evaluate your personal investment and financial goals first. If selling a mortgage note is an objective of yours in the near future, you’ll want to contact a note buyer ASAP to get the ball rolling and maximize your returns while you still can. With rising mortgage rates on the horizon, it means you won’t find a better time to sell in the short-term.

How to Proceed with Selling Your Note

If you’ve evaluated your situation, goals and opportunity in the marketplace and determined that selling your note today is indeed the best financial decision, then it’s time to take action.

First, you’ll want to reach out to prospective buyers for a quote. Keep in mind that note buyers won’t offer you the full outstanding balance of your loan. Instead, they’ll factor in down payment, borrower credit score, loan terms, payment history and other details and give you a fair offer to take the loan off your hands. Typically, you can expect to get about $0.65 to $0.90 for every dollar of unpaid principal balance on first-position loans.

Once you’ve received your quotes, you’ll choose a buyer and accept the offer in full or partially. If you’re looking to eliminate the burden of managing the mortgage or want a larger lump sum of money, selling the entire note is your best choice.

After accepting the offer, you’ll provide the buyer with a copy of the property note, deed, land contract or mortgage, and they’ll verify all the details of the loan, including the property value, the borrower’s credit, the note’s loan-to-value ratio and more. You’ll then need to submit a series of documents to the underwriter to finalize the sale (see our loan process break-down for more detail on what you’ll need to provide.)

Next, the buyer will order a Broker Pricing Opinion or an exterior appraisal, perform a title search and schedule the closing date. At closing, the final documents will be signed, and you will be paid by check or wire transfer by your buyer. The note is now off your hands and the purchase is complete. Use your proceeds to make other investments, or put it toward credit card debt or any other expenses at your discretion.

Maximize Your Note Returns

As you evaluate opportunities for selling your note, keep in mind the Fed’s recent take on rate hikes: “In the FOMC’s view, further gradual increases in the federal funds rate will best promote attainment of both of our objectives.” Federal interest rates are likely to rise several times over the next year and subsequently, so will mortgage rates, seller-financed loans and overall note buying opportunities. That means prices on notes will start to dip.

If you want top-dollar for your note, whether it be through selling to business note buyers or a general note buying company, time is of the essence. Act now, and get in touch with Amerinote Xchange today for a quote. With more than a decade in the business, we’re experts in note buying and selling – and we can help you maximize your returns.