Author Topic: Why not buy notes with a premium???  (Read 1698 times)

jcurry6664

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Why not buy notes with a premium???
« on: October 12, 2017, 01:22:08 PM »
I've been investing with LC for a while, and just recently started to think about trading notes on Folio.

I was thinking of buying 60 month notes with 12 - 18 payments left, filtering them to ensure they have never been late and have not dropped credit rate.  My thought is that if they haven't defaulted in the first 4 years and their credit is stable, there is a high probably they will pay off the loan.

The one question I have is why do I see so much advice to not pay a premium.  My thoughts are the premium gets rolled into the yield to maturity, so if I can get a higher yield, I should still be ahead.  What am I missing?

Fred93

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Re: Why not buy notes with a premium???
« Reply #1 on: October 12, 2017, 01:27:09 PM »
The one question I have is why do I see so much advice to not pay a premium.  My thoughts are the premium gets rolled into the yield to maturity, so if I can get a higher yield, I should still be ahead.  What am I missing?

Borrower can pay off the loan early.

jcurry6664

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Re: Why not buy notes with a premium???
« Reply #2 on: October 12, 2017, 01:32:37 PM »
Yes, that makes sense.  I wonder how often that happens deep into the loan. Thanks.

Fred93

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Re: Why not buy notes with a premium???
« Reply #3 on: October 12, 2017, 01:46:26 PM »
Yes, that makes sense.  I wonder how often that happens deep into the loan. Thanks.

LC provides all the data for all past loans, now over 1.5 Million of 'em, so you can compute this sort of thing, not only in toto, but also for your particular loan selection criteria.  This is one example of how LC's transparency still works really well.

Treerachat

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Re: Why not buy notes with a premium???
« Reply #4 on: August 21, 2018, 04:51:03 AM »
I wondered about this as well.

muflafler

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Re: Why not buy notes with a premium???
« Reply #5 on: October 06, 2018, 04:53:11 PM »
Itís true you can lose the premium paid if a note pays off early, but is it more important to try to minimize a 3% loss from a prepayment, or a 100% loss from a default?

Joe6Luck

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Re: Why not buy notes with a premium???
« Reply #6 on: October 06, 2018, 09:57:43 PM »
Yes, that makes sense.  I wonder how often that happens deep into the loan. Thanks.
This is one example of how LC's transparency still works really well.

While we have so many complaints about LC, this is a prominent reason that I think LC is better than other platforms.