Par Value

Par Value — the benchmark price point that equals 100% of a note's outstanding principal balance. When a note trades "at par," the buyer pays dollar-for-dollar what the borrower owes. Notes purchased below par are bought at a discount, while those purchased above par carry a premium. In the secondary mortgage note market, most whole-loan trades occur below par because buyers require a yield spread above the note's stated interest rate to compensate for risk.

Understanding par value is essential for calculating purchase price, expected yield, and potential profit. A note with an unpaid principal balance of $50,000 bought at 70 cents on the dollar has a purchase price of $35,000 — a 30% discount to par. This discount creates the spread that drives investor returns, whether the note is performing and payments continue to maturity or the borrower pays off the loan early.