The Simple Man's Guide To Real Estate
What is a Discounted Mortgage?
A Discount Mortgage refers to a mortgage that already exists on a property and held by a private party who wishes to sell that mortgage for a lump sum - like selling a winning lottery ticket with small annual payments in order to get a large sum now.
When you find someone who holds a mortgage they want to sell, the rule of thumb is that you should be able to purchase it for about 50-80% of its CURRENT face value.
Do not confuse "discounted mortgages" with mortgages you may get on properties you buy. A mortgage is first written against the value of a property for the purpose of buying it. Sometimes an individual, rather than a bank, will write this mortgage. Months or years later, this individual who holds this mortgage that is giving him a monthly income (the home buyer is paying him like he would pay a bank), well, the mortgage holder may decide he needs cash - maybe for medical bills, a child going to college, or maybe he wants to see the world on a cruise ship. So, he puts the mortgage up for sale. It is an asset. Mortgage brokers and investors buy these, usually paying 50-80 cents on the dollar (against the CURRENT face value, not the original face value). This, then, is why they call it a discounted mortgage.
By the way - when you get a mortgage from a bank, the bank probably will not keep it. They will sell it at discount to FANNIE MAE or FREDDIE MAC. You still pay your payments to the bank. They then send it to FANNIE or FREDDIE.
To determine current face value of a mortgage, use "Monthly Loan & Mortgage Payment Tables" booklet by W.T. Rogers, available at most bookstores and stationary shops, (or use a spreadsheet app on your computer). In the back is a table that lets you easily determine current face value.
The Simple Man's Guide to Real Estate includes further details on these wealth builders, how and where to obtain them, how to use them to substantially increase your net worth quickly and how to obtain them without spending a dime of your own money.
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