Question 1

What discount rate should I use to value a note?

Accepted Answer

There's no single right answer — it should reflect the risk of the specific payer and property. A rate near current mortgage rates assumes low risk; note buyers often use 10-18% for private notes, reflecting illiquidity and default risk. Try several rates side by side.

Question 2

Why is the NPV lower than the total of all the payments?

Accepted Answer

Because money received later is worth less today than money received now — the difference is exactly the discount. A larger gap between NPV and the payment total means either a longer term, a higher discount rate, or both.

Question 3

Does a balloon payment change the present value much?

Accepted Answer

It depends on how far out it is — a balloon due soon barely gets discounted, while one 20+ years out can be worth a small fraction of its face amount today. This tool discounts it the same way as any other future dollar.

What is a stream of seller-financed payments actually worth today?