Getting A Discount On Your Mortgage When Refinancing (like A Secondary Note)
99% of the time when people refinance, they cash out the mortgages for 100% of the value. Is it possible, when refinancing, to get the mortgage holders to accept a discounted payment for payment in full (as if it were a note being sold at $.95 cents on the dollar) OR as if it were a short sale? Let's assume that this is a note that is performing well and is not in arrears.
I understand that the mortgage company won't allow the title holder to short a note, but you could get around this by Quit Claiming it to a third party (or a different LLC) and having that entity do it for you.
Who would you talk to at the mortgage company to do this? Loss Mitigation? How about to buy it as a note on the secondary market.....which department would you talk to? Are secondary notes generally purchased in bulk?
We all know that a buck today is more valuable than a buck tomorrow (time value of money). This is standard practice in the secondary note market, but how can we take advantage of this when refinancing (instead of being taken advantage of).
I'm undergoing a refi right now. I called and asked if they would accept a 95% cash payment now. It was funny. The girl was absolutly puzzeled as to why any mortgage company would do that. I tried to explain to her the time-value of money in 20 seconds, but she didn't get it. I was obviously talking to the wrong person.
If my logic is off, please correct me, but it seems like a good, sound idea to me.
Just to get this straight..
You are going to a bank, who's business model is based partly on long-term loans of money in an effort to increase revenue via the interest on those loans.
The bank loans you 1MM at 6% for 30 years. You make all the payments on time. After one year, you go to the bank and say I have given you $72K for this last year's use of that 1MM and would like to now pay you back $950K as payment in full. The bank pulls out it's calculator and says hmm. 1MM- (950K + 72K) = 22K = 2.2% interest for the year. hmmmmm.... we could accept his offer for 2% or say no and keep making our 6% hmmmm....
But you say, time value of money, blah,blah,blah Just think, if you took back the money, you could then loan it to someone else for 6% (just like I'm paying).........
hmmmmm....... NO
Or in other words, if you ever have a million dollars that you want to loan me, I would be glad to give $950K back so that you could have it today, just give me a call.
Usually the bank sells the paper and keeps the rights to service the loan. They collect a fee for this.
So the bank would have convince the investor to take the haircut.
Now if the banks still has the paper and it is a performing loan they can sell it the discount or profit will depend upon the rate of the loan and what the rate would be on the loan today. So they could possibly sell the loan and make a profit so why would they take a discount?
Now if your loan was with a private investor then they may take a discount. Hence all of the programs to broker notes. Guess who really buys all of those notes?
The same investors who might be holding the paper on your loan.
One moer thing to think about. If you ask for this what will the Bank think next time you want a loan?
Now one thing that might be a good idea is to go and talk to the bank and say. Hey things are going well with this investment and I am happy doing business with you. But I would like to see what can be done about the rate that I am paying.
Good Luck
James
I actually had an interesting conversation with the vice president of a bank on this topic. Their bank doesn't sell their loans, so obviously it isn't something that they would do.
As for mcl8190's Comments. Banks have limited funds. If they can have a limit of $50 Million in outstanding loans, once they hit that max they have to either 1. Stop writing loans, 2. Wait for loans to be paid off, or 3. Sell them.
Most of the initial payments are interest and They also get money off of points.
Based off of of your logic, the secondary note market is insanity.....but it does exist. Lenders are often eager to sell notes, and buyers are ready and willing to buy them.
One of the problems that I see is that notes are often packeged and sold in bulk. They may not be willing to sell a single note.
Any other ideas???
I'm trying to purchase just one note now Dave from Chase and they want me to buy at least a very minimum of 1MM of notes. I want just one non-performing note though!!