Posted by Michael Morrongiello American Note on June 23, 1999 at 23:07:19:
With both notes at the same interest rate then the note that is going to pay the largest amount monthly would produce the a more attractive Present Value to a note investor. In this example given these two notes really would not have much difference in terms of their CASH value to a note buyer assuming they were well secured, where the payor has some REAL equity, and decent credit.
A MAJOR area of concern and a common Misconception among those creating paper is the use of a short term balloon payment. Their thinking is that if the note only goes (2) two years then it is more valuable than a note that would have a longer term. This is NOT always accurate thinking. Remember Balloon payments have a fairly regular habit of NOT getting paid when they are due. If the balloon payment amount represents a difficult LTV% for the payor to refinance, then most note buyers will simply ignore the balloon payment entirely when looking at the pricing for such a note with a short term DANGEROUS high LTV&% balloon payment.
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