A question for you, berdie:
Say I loaned HotHunt $100,000 at 10% interest, 10 year payback. HotHunt is making a usual $1321.50 monthly payment to me.
About 4 years in, I am still owed about $71,500. HotHunt offers to pay everything off right now, for $60,000. Now, to date (48 months in), HotHunt has paid me $63,400. So I’m being offered a complete payoff amount of $123,400 after 4 years. Which is a nice little ~7% return.
No, it’s not the full 10% I originally negotiated, but I’d have all my money back NOW, and have made about 7% average on it as well.
OR, I could say no - and hope that HotHunt can continue making regular payments for the next 6 years. What happens if HotHunt was severely injured or killed? Could I take 12-24 months of probate on a property with zero income from it? Would bankruptcy look for HotHunt’s estate, and I’d end up getting nickels on the dollar because of other creditors?
No, I’d be highly inclined to take the full payout, at less than the face-value of the remaining note, because I’m still up rather nice, still have a good return, and can get full liquidity right now, then re-invest.
It’s a pretty normal strategy, and one employed by BOTH sides. It’s why banks and most lenders do NOT charge early-payoff penalties - they will give up potential profit (interest) in order to get their money back and reduce their risk to future income streams.
There is an ebb and flo to business world. It is not static but very dynamic.