Par, premium and discount
Loan sale prices are quoted as a percentage of the unpaid principal balance. Par is 100, a premium is above 100 (the buyer pays extra) and a discount is below 100 (the buyer pays less than the balance).
How par, premium and discount work
A price of 100 means the buyer pays exactly the unpaid principal balance. At 101, a $500,000 loan sells for $505,000; at 98, it sells for $490,000. The same convention is used for bonds: the SEC’s Investor.gov explains that par is the face value repaid at maturity, and that an older bond paying less than current rates may have to be sold at a discount.
What moves a loan’s price is mostly the rate it pays compared with the return the buyer wants, adjusted for risk. A note paying more than the buyer’s target yield can earn a premium; one paying less, or with weaker credit, missing documents or a short remaining term, may trade at a discount. The Office of the Comptroller of the Currency’s mortgage banking handbook notes that loans with missing documents may have to be sold at a discount.
Why it matters to a private lender
Price is not the whole picture. A sale at 100 can be better than one at 101 if the higher price comes with servicing released, heavier repurchase terms or slower settlement. Compare the full terms, and know which of your loan features buyers pay up for.
Example
Hypothetical. A $400,000 bridge loan at 12% is offered to two buyers. One bids 100.5 with servicing released; the other bids 100 with servicing retained, so the lender keeps the borrower and a servicing fee.
Where Lender Capital fits
Lender Capital places first-lien, business-purpose real estate loans with capital partners. You apply once, then submit each loan with the full file. We send it only to capital partners whose criteria it fits, one partner funds the whole loan at closing and it is assigned to them. You keep your points (less the placement fee), earn the spread above the partner’s rate and service the loan. You pay a placement fee only when a loan funds.
Lender Capital is a business-to-business platform. This page is general information, not legal, tax or securities advice. Terms of warehouse lines and other funding sources vary by provider; confirm them with each provider and your counsel.