I’m trying to gage the saleability of the private note market. Specifically, I would like some feedback on what interest rate I should charge in the following hyopthetical situation:
I have a first lien note for 20% LTV of a single family home
this is the only note on the property
this is a 10yr fixed rate note
the borrower’s credit score is 680
I am listed as an “add insured” on the homeowner’s hazard insurance.
I want to sell in a simultaneous close (no seasoning)
What should the interest rate be so that I can get at least 92 cents on the dollar for the note(is this reasonable)?
Need a few more details to help you with an answer.
-what is the current balance of the note?
-what is the current monthly payment on the note?
-is the note fully amortized or is there a balloon payment?
-what is the current interest rate on the note?
If you don’t want to share this in the open forum you can PM me.
Okay, maybe I didn’t fully understand your post. You are contemplating making a $40,000 mortgage loan (1st position, 20% ltv) to a borrower/occupant with a 680 credit score. The note will fully amortize with monthly payments over a ten year term.
You have not made this loan yet but are trying to determine what interest rate to charge?
You want to sell the note to another investor and want to know what interest rate that investor will require if you get at least 92 cents on the dollar for your note?
If I understand correctly now(?) then you would charge a rate on your initial mortgage loan that rewards you for the risk you are taking. Measure this risk by the LTV, the borrower’s credit worthiness and your investment return requirements. Once you determine your required rate of return then you can figure the mortgage payment and with this another investor can determine what they would be willing to pay for the note. If the rate you initially charged the borrower is at or near the rate required by the new investor then you would sell the note for approximate face value with no discount. If the new investor requires more return than your note currently generates then they will discount the face value until the note yields their required rate. Obviously, you want to keep 92 cents on the dollar in the second transaction. But everything revolves around the rate you charge your borrower in the first transaction.