What’s A Good Interest Rate On A Private Mortgage?

2009 November 15

As a Mortgage Note Buyer, I get this question all the time. And while there is no one answer, I would say this. The higher the better to a point. First let me address my “to a point” comment. What I mean by this is if the rate is extremely high, say 11% or more, the more likely the buyer/borrower is to refinance limiting the future cash flow to the note buyer. Having said that, a rate of 8% or 9% would be very appropriate in this market. I strongly suggest avoiding offering a below market rate to buyers if you plan on selling the note. I see rates of 3% to 6% all the time. These rates can really hurt the price you receive when selling a note. So unless you plan on holding the note, demand a higher than market rate or at the very least set a rate appropriate with the seller’s credit (make them provide you with a credit report less than 30 days old) and their down payment. That way a low interest rate can be offset by good credit and down payment.

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