Buy My Own ?
Has anyone contemplated the possibility of contacting the owner of a mortgage on their own personal residence and offering to purchase this mortgage at a discount, effectively paying off the debt at a lower cost.
Hearing information on mortgages being sold and traded I am wondering/investigating to see if this idea has any merit, or is prevented by banking laws etc.
Vestor
Vestor:
Do you mean buying a note someone holds on your property for a discount, or buying a note on someone else's property (where the payor is living in the property) for a discount? Your post is not entirely clear.
Anyway, what I have done many times is to buy the note for a discount, on someone's property and then trying to ge them to refinance the property to a lower mortgage. Sometimes this involves helping them clean-up their creditor, but if you can get them to pay off the note early, your yield skyrockets! Alternatively, if a refinance is not possible, I will usually make the following offer to the payor. "If you will double your payments on your note, I will cut your interest rate in half." Believe it or not, if you bought the note at a 15% yield and then restucture the note in this way, your view will go over 45%. Do the numbers for yourself on your HP calculator and see what I mean. While a 15% return on your money is good, I would rather have a 45% return while I am helping the owner refinance the property and possibly raising the yield to over 100%. Now that is my idea of making money!
Hope that helps,
Taxjunkie
Taxjunkie,
Yes, I want to know if it is possible to buy out the mortgage on your own house.
It seems that this would effectively be a prepayment of the mortgage. However, as I hear about my mortgage being sold off and my payment going to another entity it prompts the ?, is it possible to purchase at a discount the existing mortgage debt on ones own residence.
Regards
Vestor
Taxjunkie
ps... Cool info on increasing note yeild, thanks.
Vestor
Quote:
It seems that this would effectively be a prepayment of the mortgage. However, as I hear about my mortgage being sold off and my payment going to another entity it prompts the ?, is it possible to purchase at a discount the existing mortgage debt on ones own residence.
Regards
Vestor
Yes, it is possible to buy your own note on your own property. It is not a prepayment of the mortgage though. Since you are not paying off the mortgage but rather the lender is assigning the mortgage to you for $$$. Don't have the dollars? Do what I have done. Negotiate the discount, and set up a closing on the note in 30 days. Meanwhile find a lender to refinance the property, so you don't have to use any of your own money. You might still be able to pull cash out if the lender allows a cash-out refi on the loan you applied for. (Yes, most lenders will view the above as a cash-out refi).
This is generally a non-taxable deal if you are purchasing the note from the person that sold you the property. If the lender is not the person that sold you the property, you will have cancellation of indebtedness income, in the amount of the discount, which is taxed as ordinary income at ordinary income tax rates. However even if you have to pay some taxes, you are still economically way ahead of the game. Heck, I would pay $30-$50 to get a $100 discount, wouldn't you?
Hope that helps,
Taxjunkie
Mr. Taxjunkie, read your expert explanation on buying a note, refinancing it at a lower interest rate. Am new to this topic, can you explain how your profit goes up to 45%? How do I calculate this?
Thanks.
Taxjunkie
double pymt/cut int in 1/2
Where did you learn that? I got it at a seminar in the '70s. I think maybe Barney Zick??
I love it, but nobody else I know has ever heard of it.