Mortgage Note Encyclopedia

Accounting in note investing tracks loan-level and portfolio-level transactions for accurate tax reporting, profitability analysis, and investor.

Accounts payable (AP) is money owed to vendors for services received. For note investors, AP includes fees to servicers, attorneys, title companies, and.

Accounts receivable is money owed to a business. For note investors, the mortgage note itself is the receivable — a debt asset generating returns.

An accredited investor meets SEC financial thresholds like $1M net worth or $200K income, qualifying them for private note fund offerings and syndications.

A basis point equals 0.01% and is used to express interest rate changes and pricing spreads in mortgage note transactions.

A bridge loan is short-term financing that covers the gap between an immediate capital need and longer-term funding for note investors.

Capital is cash or liquid assets available to purchase mortgage notes. The amount and source of capital shapes an investor's deal flow and pricing power.

Cash-on-cash return is annual pre-tax cash income divided by total cash invested. Note investors use it to price performing loans by working backward.

Compound interest is calculated on both the original principal and all previously accumulated interest, accelerating growth over time.

An entity is a legal business structure — LLC, corporation, or trust — that separates personal assets from note investing liabilities and meets licensing.

Freddie Mac (FHLMC) is a GSE that buys and securitizes mortgages, playing a central role in the secondary mortgage market.

A general partner (GP) is the managing partner who controls operations and bears unlimited liability in a note fund, while limited partners provide.

Ginnie Mae (GNMA) is a U.S. government agency that guarantees mortgage-backed securities backed by federally insured loans.

Gross return is total income from a note investment before deducting servicing fees, legal costs, and other expenses — compare to net return for true.

A hard money loan is a short-term, asset-based loan from a private lender, underwritten on collateral value rather than borrower credit — common for rehab.

A hedge fund is a private pooled investment vehicle that buys large portfolios of mortgage notes from banks and GSEs, often reselling loans downstream to.

Investment value is what an asset is worth to a specific investor based on their return targets, holding period, and cost of capital.

Leverage is the use of borrowed capital — credit lines, debt facilities, or private loans — to increase buying power and amplify equity returns when.

A line of credit is a revolving borrowing facility used both as a loan structure (HELOCs) note investors buy and as a portfolio financing tool for fund.

Liquidation is converting a note or REO property into cash through sale, payoff, or foreclosure — the final step in realizing returns on a note investment.

Liquidity measures how quickly an asset converts to cash. Mortgage notes are illiquid, requiring weeks or months to sell — making capital reserves.

LTV is the ratio of a loan's unpaid balance to the property's market value. A lower LTV means more equity protecting the note investor's lien position.

A mortgage-backed security (MBS) is an investment created by pooling mortgage loans and selling shares to investors on the secondary market.

Par value is the face value or unpaid principal balance of a mortgage note. Buying below par creates a discount that drives investor returns.

Proof of funds (POF) is a bank statement or letter verifying a buyer has the capital to close a note purchase. Sellers require POF before accepting offers.

Present value is the current worth of future mortgage payments discounted at a specified rate — the foundation of every note pricing calculation.

Private equity refers to investment capital deployed into private assets, including distressed mortgage note portfolios.

A REIT is a company that owns or finances income-producing real estate, giving investors access to real estate returns with stock-like liquidity.

ROI measures total profit on a note investment as a percentage of capital invested. It is simple but ignores hold time — pair with IRR for a full picture.

A self-directed IRA (SDIRA) lets investors hold mortgage notes in a retirement account, enabling tax-deferred or tax-free growth on note income.

Securitization pools mortgage loans into trusts and issues securities to investors, driving liquidity and creating deal flow for note buyers.

Simple interest accrues only on the outstanding principal balance, not on accumulated interest. It is the standard method for mortgage notes.

A special purpose vehicle (SPV) is a separate legal entity created to isolate financial risk in mortgage note transactions.

Velocity of money measures how quickly a note investor cycles capital from acquisition through resolution and back into the next deal.

IRS Form W-9 collects a taxpayer identification number for payment reporting and is exchanged at every stage of a mortgage note transaction.

A warehouse line is a revolving credit facility that note investors and mortgage companies use to fund loan acquisitions before resale.