Charge Note Payors Zero Interest

When to use the zero-interest offer

This works if you choose your payor carefully. Use it when:

• You’d rather have a higher yield over a shorter time. In this example you trade an 18% yield over 120 months for 25.56% over 30 months.
• You’re concerned about the loan-to-value ratio and want to improve it.

The more experience you have with it, the better your success rate will be.

What the restructure accomplishes

Like all good formulas, this one does several things at once. You have:

1. Restructured an existing situation.
2. Increased your rate of return from 18% to 25.56%.
3. Decreased your risk. Every payment is 100% principal, so each one improves the loan-to-value ratio.

What the payor gets out of the deal

Why would a payor agree to more than double the monthly payment? Look at the deal from their side. On the original terms, a $15,000 balance at 10% over 120 months works out to a payment of about $198.23. Here’s how the two options compare for the payor, using the lesson’s own example.

	Original terms	Zero-interest offer
Monthly payment	$198.23	$500.00
Payments left	120	30
Total the payor pays	$23,787.13	$15,000.00
Interest the payor pays	$8,787.13	$0

The payor saves roughly $8,787 in interest and owns the property free and clear 90 months sooner. That’s the pitch. The catch is the payment: it jumps by about $300 a month. Only a payor who can comfortably carry that will say yes and keep paying.

For you, the same numbers explain the yield jump. You paid $11,001.24 either way. Getting $15,000 back in 30 months is a better return than getting $23,787 back over 10 years at the price you paid. You can check both yields yourself with the note calculator.

Choosing the right payor

The lesson stresses that this only works with a certain type of person. Before you make the offer, look for signs that the payor fits:

• A long record of on-time payments on this note.
• Income that has grown since the loan was made, so a bigger payment is realistic.
• A clear interest in owning the property outright, or in saving on interest.
• No other large debts that the higher payment would squeeze.

A good way to start is with questions rather than an offer. Ask whether the payor has ever thought about paying the loan off early, and what a comfortable monthly amount would be. Their answers tell you whether to raise the zero-interest idea at all.

Common mistakes with a zero-interest restructure

• Pushing a payment the payor can’t afford. A higher yield on paper means nothing if the note goes into default. A payor who stretches to say yes is a bigger risk than one who keeps the old payment.
• Skipping the paperwork. A change to the rate and payment is a loan modification. Put it in writing, signed by both sides. How modifications are documented and recorded varies by state and province, so have a qualified attorney prepare or review it.
• Forgetting to rerun the yield. Always solve for your new yield at your actual purchase price before you make the offer. A different price or balance gives a different answer.
• Making the offer before you own the note. This is a restructure of a note you’ve already bought. Don’t contact a payor about new terms on a note you don’t yet hold.