Where To Buy Mortgage Notes

Where To Buy Mortgage Notes

June 14, 2022

Produced by:
Richard Stevens

Richard Stevens is an active real estate investor with over 8 years of industry experience. He specializes in researching topics that appeal to real estate investors and building calculators that can help property investors understand the expected costs and returns when executing real estate deals.

If you want to invest in real estate, but the thought of owning physical property doesn’t appeal to you, consider investing in mortgage notes.

Mortgage notes are an investment in a homeowner’s debt or the mortgage they borrowed from the bank. You’re still investing in real estate, just the debt side of it. A mortgage note is a loan a person borrows that may include origination points, closing fees, and other third-party costs to close the transaction.

Some banks hold onto the mortgage debt, collecting the interest and principal payment themselves, but to free up cash, some banks sell the mortgage notes to investors like you. Knowing how mortgage notes work and where to buy mortgage notes are the first steps to successfully invest in them.

The Different Types of Mortgage Notes

There are two types of mortgage notes you can invest in – residential mortgage notes and commercial mortgage notes. Residential mortgage notes are loans on homes, either primary residences or investment properties. Commercial mortgage notes help fund commercial property, such as malls, warehouses, and office buildings.

Whether you invest in residential or commercial real estate, there are different types of mortgage notes to invest in including:

  • Fixed rate mortgage note – This is the most common type of mortgage note. The borrower pays a fixed interest rate for the life of the loan, which is also a fixed term. You know exactly when the loan ends and how much money you’ll earn.


  • Adjustable rate mortgage note – The interest rate on an ARM mortgage note isn’t fixed. It’s tied to a specific index and has an anniversary date which the interest rate changes according to its index each year. The ARM note is riskier because the interest rate can increase significantly, making it hard for the borrower to afford the payments.


  • Balloon payment mortgage note – This loan has a fixed interest rate, but a lump sum payment is due at the end of the term. The term can be a few years or 30 years, depending on the lender. If the borrower can’t make the balloon payment, the note holder takes possession of the home.

Where Can You Buy Mortgage Notes?

Banks often sell mortgage notes to increase their liquidity, especially if they’re near the limit they’re required to carry. Since banks usually sell mortgage notes in bulk, you’d need millions of dollars to invest in them.

Instead, knowing where to buy mortgage notes online will help you invest in mortgage debt. Here are the most popular sites:

  • Notes DirectNotes Direct sells notes for both performing (loans being paid), non-performing (loans not being paid on time), and real estate owned properties. You buy and sell mortgage notes right on their platform in a non-auction format and all notes come from vetted sources.


  • PaperstacPaperstac is a note marketplace where you can buy notes right from your computer. You can search the current inventory or set up alerts for the criteria you want a note to have before buying it. It’s free to bid and list notes and you pay just 1% of the note amount if you close on a deal.

What’s the Difference Between a Mortgage and a Mortgage Note?

Many people confuse a mortgage and mortgage note. A mortgage note or promissory note is the promise to repay the debt. The note states all the details of the loan including:

  • Borrower name and address
  • Loan amount
  • Loan term
  • Interest rate
  • Late charge

The county doesn’t get the mortgage note (it’s not recorded). The bank holds onto the note and ensures it’s followed.

A mortgage is the security instrument on the loan. It gets recorded with the county and is what gives lenders the right to accelerate the loan and take possession of the property if the borrower doesn’t pay his/her debt. Some people, though, pay their mortgage note off early, which can reduce how much interest you are liable to during the course of the loan.

The mortgage states how long the lender has to notify the borrower of his/her default and the bank’s intent to foreclose on the property. The mortgage states the borrower’s name(s), the property address, and the property’s description.

Can You Flip Mortgage Notes?

Since investing in notes is like investing in real estate, you likely wonder if you can flip mortgage notes like you can flip houses.

The short answer is ‘yes.’ Here’s how.

  • You buy notes at a discount and turn around and sell them for a markup to retail investors. This works well for investors who have wholesale connections because they buy a large number of mortgages.
  • You buy underperforming notes (notes that borrowers aren’t paying on) and work out an arrangement with the buyers. Once they are back on track, you sell the note for a higher value and make a profit.
  • You buy underperforming notes and take possession of the property when allowed. You then sell the home quickly (micro-flipping) the property to retail investors.

Final Thoughts

Investing in mortgage notes is a great way to get into real estate investing without owning the physical property. For some investors, owning the property is too much work or is too expensive. Others just don’t want the hassle of owning physical real estate – they’d rather own something more liquid and invest in the debt side of real estate.

Knowing where to buy mortgage notes and what to look for is important. Like any investment, diversify your portfolio. For example, include fixed rate, adjustable rate, and balloon loans in your portfolio rather than all adjustable rate or all fixed rate loans. You may even mix it up and have a mixture of residential loans and commercial loans to diversify even further, reducing your risk of default.

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