How Will Rising Mortgage Rates Affect Your Investment?

Tara Mastroeni
Published: October 20, 2016 | Updated: October 29, 2023

new houseAccording to a 2016 report from The New York Times, the Federal Reserve seems poised to raise interest rates due to brighter economic horizons than existed a few years ago.

“Fed officials have continued to emphasize that they expect to raise rates at least once before the end of [2016],” the report states. “Some analysts predict that the Fed will move at its next meeting in September, although markets put the chances at only 20 percent.”

Impact on Private Mortgage Note Investing

While an interest rate hike seems likely in the near future, it probably won’t happen for at least a few more months, which gives purveyors of private mortgage note investing time to prepare for what a spike in interest rates could mean for their future note investments. Looking ahead, a rise in mortgage rates will affect private mortgage note investing in three major ways.


1. Higher Mortgage Note Prices

Rising mortgage rates will put more money in the pockets of mortgage note holders. Consequently, if you purchase a note after mortgage rates rise, there’s a good chance you’ll pay a higher price than you would if rates stayed the same. However, the note will be more financially valuable to you, as well.

2. More Income for Note Holders

You may pay more for a mortgage note after interest rates rise, but there’s a tradeoff: Once you own the note, you stand to earn more money from the instrument than you would if the rate were lower. In addition, if you decide to sell notes, you can expect increased interest rates to yield proportionally higher sale prices.

3. Increased Home Foreclosures

This is the most unfortunate effect rising mortgage rates will have on private mortgage note investing. The more real estate owners pay to satisfy the mortgage for their property, the greater the chance they will default on the mortgage.

Foreclosures aren’t just bad for the economy. They’re also hard on the finances of mortgage note investors, who must find a new occupant for the property, or liquidate the property using a short sale or real estate auction, as an institutional note holder would do.

4. More Motivation to Sell Notes

blue village houseWhen interest rates rise, some owners of seller financed mortgages find it increasingly profitable to retain their notes for monthly income, while others see the increased note value that higher rates bring as a golden opportunity to sell notes.

When the owner of a mortgage note liquidates the asset, the person usually does so for one of two reasons: to pay off debt, or to make a significant investment in a different type of asset. When mortgage rates rise, note holders who wish to sell have more motivation to act.

About Our Company

Amerinote Xchange is a California-based loan acquisition firm. We specialize in private mortgage note investing, acquiring mortgage notes, mortgage loan portfolios, business notes, and other types of debt instruments that are bought and traded on the secondary loan market.

If you own a mortgage note, and you would like to sell it for a lump sum, please call us today at (800) 698-3650, or send us a message through our contact form. We look forward to helping you liquidate your note!

Cited article sources

  1. NewYorkTimes. (July 28, 2016). ” Fed Suggests a Growing Chance That Rates will Rise this Year.”