Why Are Mortgage Notes Discounted Anyway?
When real estate note brokers purchase partially paid notes, they pay the note holder a discounted price after factoring in the time value of money, the payer history, and property condition. If there is still a significant period of time left for the payer to make payments, the future payments are not worth the same amount in current dollars. Calculations are made to equate all the payments into current value, which is how the discount is determined. After purchasing notes at a discounted price, note brokers try to restructure the loan and increase its value. Increasing the value of the loan requires the payer to refinance or increase payments, which requires a new contract. Factoring the same concept of time value of money, we can understand how increasing payments now creates more value. The note can then be sold for a higher price. Discounts must be taken from the loan amount due to inflation and the time value of money. There may still be years left on the loan repayment, but the
