Note Professor Newsletter
December 2006 Issue 18
Santa Claus Double Cross
by Tom Henderson   The Never Ending Note

Those who have taken my note class know I will often go over some of “the tricks of the trade” that lenders and credit card companies use to enhance their position.

Here is the technique that you will often see at this time of the year. To get you into the Holiday Spirit, often mortgage or finance companies will send you a card that says “Ho, Ho, Ho!! Merry Christmas!!! Since you are a valued customer, and we know how Christmas can be a financial burden on you, we are going to play Santa Clause and allow you to skip the December payment, so you will have more money for holiday gifts. We will just add your payment on to your balance, and you can resume making payments in January”.

Sounds good, doesn’t it? Well, if you are financially embarrassed at Christmas time, it might appear to be a generous offer. Why would they allow you to skip a payment? Out of the goodness of their heart, right? Nope, let’s look.

Say you had a $100,000 mortgage @ 7% for 30 years with payments (PITI) of $665.30.beginning in January 2006. In November 2006 after 11 payments, your balance is $99,071.58. So you decide to take up the mortgage company’s offer and skip the December payment. This innocent act causes $665.30 to be added back to your balance. In January of 2007, instead of your balance being $98,896.32 (with a December payment), your balance is $99,561.60. Not much of a difference you say? Well, plug this amount into PV (Present Value), and look at what happens to N (Number of Payments). You have added 9 more months of payments to your loan. In essence you now have 357 months to pay off this loan, instead of 348 months.

Start playing with your calculator and you will see that by allowing the payor to skip one payment a year, and adding the payment to the balance, this not only increases the balance, but also increases the amount of time to pay off the loan. When credit card companies or finance companies apply this technique to revolving credit, how long will it take to pay off a debt? I am reminded of a Johnny Mathis song, “Until The Twelfth of Never", and that’s a long, long time. Finance companies, want a performing note on the books for as long as possible. Every extra payment adds to their cash flow. By allowing you to skip one payment a year, this extends their cash flow. Meaning additional interest for you to pay and pay and pay.

Remember, “Let your money work for you, not against you”.

Got questions or comments, be sure to contact me. It is from your comments and questions that I get the ideas from many of my articles.

If you know of anyone who has a Note they want to convert to cash contact me at I do pay referral fees.

I want to wish everybody A COOL YULE and a FRANTIC FIRST.
Tom Henderson /a.k.a. THE NOTE PROFESSOR
Copyright H&P Capital Investments LLC
All rights reserved
Ebay Encore Investor Gift
  The Note Professor Notebook np
Many of you know I have contracted out the rights to sell THE NOTE PROFESSOR NOTEBOOK on EBAY. Last month, the two that were for sale at the EBAY price lasted only 12 hours after THE NOTE PROFESSOR NEWSLETTER was sent. Several of you wanted to know if it would be on sale again.
I am told that in December, there will be two more for sale at the discount price of $69.95 . This is a perfect holiday gift and stock stuffer. Simply go to and search for NOTE BUYING. This should take you right to it. Not sure it is going to be offered again on EBAY for a while.
Can You Sell Your Note and Keep the Payments Too?
by Tom Henderson   Reverse Partials or Partial Pass Throughs
A Little Calculator Practice

I received an email from a note owner who had just come into a financial dilemma. She had moved into her new home, and still had her vacant home for sale. She was in a double bind. She needed to sell her note to raise cash for a family emergency; yet she needed to continue to keep the income from the note payments in order to be able to make two house payments. She was positive that she could sell her property within the next 6 months. “Is there anyway you can help me?” she asked. “You Betcha”, I answered.

This scenario is a textbook case for using what is called a “reverse partial” or “partial pass through”. Here is how it works. I will purchase the note, and the note seller will continue to receive payments, for say six months. This technique will give the note seller the immediate cash needed, while at the same time allowing her to receive payments until her house sells. How in the name of Hewlett Packard do you calculate the purchase of a note under these circumstances?

It is just a matter of knowing that calculating the time value of money is nothing more than knowing the five variables below, and how to use them. Here is what the note looked like. (For those who have taken my class, I always make PV negative because I am assuming I am going to buy the note)

N = 348
%i = 10
PV = $-49,722.54
PMT =$438.79

Now let’s start calculating and assume we want a 12% yield. To calculate a reverse partial, this is a two part calculation. First let’s determine what $438.79 for 342 months will be worth to receive a 12% yield. (The 342 months or the number of months I will receive payments. Remember, the note seller is going to keep the payments for 6 months)

N =342
%i =12
PV = $-42,419.02
PMT = $438.79

But hang on. I will not receive these payment for 6 months. How do I get PV? So simple, even a caveman can do it. All I have to do is put the $42,419.02 into FV, and make PMT 0. Next I need only ask my friendly neighborhood calculator to tell me what the PV $42,419.02 is worth in 6 months @ 12% yield. Let’s look.

N =6
%i =12
PV = $- 39,960.64
PMT = 0

This is the same as saying if I want 12% yield on a cash flow of $438.79 for 342 months, but the cash flow will not start for 6 months. What would I pay?
ANSWER: $39,960.64

The seller gets the best of both worlds from a reverse partial technique. Immediate cash, plus being able to receive her payments for another 6 months.

This technique is also good when the payors’ credit is borderline, and the note buyer wants to reduce his exposure, meaning risk. Reverse partials can extend from 6 months to a max of two years.

This was an exercise to not only give you calculator practice, but also to get your mind working as to the endless concepts that can be applied when purchasing or selling cash flows.

I will be explaining and expanding on this technique in my Note Classes. Contact me at and I will email you times and dates and topics.

If you know of someone who has a Note they want to convert to cash, remember me. I do pay referral fees.

Got questions or comments, be sure to contact me. It is from your feed back that I get topics for my news letter.

Tom Henderson/a.k.a. THE NOTE PROFESSOR

Copyright H&P Capital Investments LLC
All rights reserved
1. Agreement to replace one party to a contract with a new party. The novation transfers both rights and duties and requires the consent of both the original and the new party
2. Replacement of an old debt or obligation with a new one

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