How sales of only partial contracts or mortgages works; Mortgage Equities

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Seller Held Notes

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Ron Ralph:
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Sanford Lindstrom:
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Partial Note Sales

Many people are familiar with the fact that a seller-financed mortgage can be turned into cash. They also know that the price they receive for their mortgage will be less than the principal balance owed to them because of the standard market practice of "discounting" to meet a specific yield requirement. To some people, it may not be advantageous to take such a discount on the entire principal balance if they only need a specific amount of cash for a special purpose.

There is another option which results in little or no discounting of the principal balance of your note.

Example

Assume you are receiving payments on a note as a result of having sold your single family owner occupied property on the following terms:

Sale price of property	$80,000
Down payment	$16,000
Amount financed by seller	$64,000
Interest rate	9%
Monthly payments	$575.82
Term - 20 years	240 payments

Cash need

Assume you have a given purpose for which you need a specific dollar amount of immediate cash, such as $20,000 for a college tuition payment, although it could be for any purpose you choose.

Solution

You sell part of the note and raise cash in the following manner:

Sell only 48 of the 240 payments due to you for an immediate cash payment of $20,090.00.
After the 48th payment, the note, which still has a remaining principal balance of $58,488.10, is returned to you and you once again receive the monthly payments.

The sale of a portion of your note might results in:

$20,090.00 from sale of 48 payments
$58,488.10 balance owing on note returned to you after 84 payments
For a total of $78,578.10 in money for you

Conclusion

If you have a need for cash for a down payment on a house, tuition bills, payoff of consumer credit debt, or perhaps a long awaited vacation, selling a portion of the payment stream on your note can be a great way to raise cash immediately.

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