Net Present Value

Net Present Value — a core valuation tool that tells an investor whether a mortgage note is worth more or less than its asking price. To calculate NPV, each expected future payment is discounted back to today's dollars using a chosen discount rate, and the total is compared against the acquisition cost. A positive NPV means the investment is expected to generate returns above the required rate; a negative NPV suggests the price is too high for the projected cash flows.

Note investors use NPV alongside IRR to make buy-or-pass decisions on individual assets and to rank opportunities within a tape. Because NPV produces an actual dollar figure rather than a percentage, it is particularly helpful when comparing notes of different sizes. The accuracy of an NPV calculation depends heavily on realistic assumptions about payment timing, default probability, and the discount rate chosen to reflect the deal's risk profile.