As an
example, lets consider a 30-year fixed-rate mortgage of $50,000.00 at 10%
interest. The payment would be $438.79 per month. In all of our examples
the investor is buying the note from the seller at a 13% yield (so you
might well do better). All of these exact figures can be determined by
anyone on a financial calculator.
The price
which would be offered by the investor for the full purchase of 360 payments
(30 years) would be only $39,666.44 to the seller. However the first 120
payments (10 years) could be bought for $29,387.71, and when the note reverts
back to the seller (after 10 years), the remaining principal balance is
$45,468.15 still owed.
For the
first 60 payments (5 years) the price would be $19,248.87 with a $48,286.83
principal balance returned to the seller after the 5 years are up. Therefore
it would be possible for a person to sell 5 years worth of payments six
times during a 30-year mortgage and receive six lump sums of $19,248.87
for an overall total of $115,493.22 from the original $50,000.00 mortgage
note.
Contrast
that to the original offer of $39,666.44 for the entire 30 years
and it shows how dramatically time transforms a 13% yield purchase price
through it's mathematical compounding effect.
There
are no companies that actually pay "face value" for a Seller-Carryback
Mortgage!
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