Note Purchase Discount Calculator

Note investors buy at deep discount and recover via foreclosure, restructure, or DPO.

Unpaid principal balance

Discount %

Expected recovery %

Months to recover

Purchase price

$105,000

Expected recovery

$255,000

Annualized return %

0.95%

How the math works

Price = UPB × (1 − discount). Recovery = UPB × recovery %. Annualized return = (recovery − price) / price × (12 / months).

$300k × 35% = $105k purchase. $300k × 85% = $255k recovery. ($150k profit / $105k) × (12/18) = 95.2% IRR.

How to Use

Enter unpaid principal balance.
Enter discount %.
Enter expected recovery %.
Enter months to recover.
Read purchase price.

Frequently Asked Questions

Note discount benchmarks?

Performing 1st lien residential: 80–98% UPB. Sub-performing (60+ DPD): 50–80% UPB. Non-performing 1st lien: 20–50% UPB. Performing 2nd lien: 30–80% UPB. Non-performing 2nd lien: 10–40% UPB. Drivers: collateral value (BPO), borrower equity, jurisdiction (judicial vs non-judicial foreclosure), state (NY/NJ/IL slow, TX/GA fast). Yield target: 12–25% on performing portfolio, 25–50%+ on non-performing. Tax: market discount = ordinary income upon collection, OID for IO assets.

How does this debt analysis fit a workout strategy?

Workout, default, and recapitalization decisions depend on the gap between in-place debt and current asset value. Lenders evaluate cure cost, foreclosure timeline + cost, broker price opinion (BPO), and borrower equity. Borrowers evaluate equity in the property, refinance feasibility, and forbearance economics. This calculator provides one input to that multi-factor decision.

Discounted payoff (DPO) vs forbearance vs deed in lieu?

DPO: lender accepts less than full balance to avoid foreclosure cost, common with non-recourse and underwater assets. Forbearance: payment deferral 6–18 months, balance accrues, useful when value will recover. Deed in lieu: borrower transfers title to lender, faster than foreclosure but lender takes full risk. DPO often best when borrower has new capital + lender wants quick exit.

Special servicing dynamics?

CMBS loans transfer to special servicer at default or maturity default. Special servicer compensation aligns with workout, but timeline is 6–24 months and fees stack ($25–250k+ in costs). Whole-loan and balance-sheet lenders move faster but with less flexibility. Bridge and debt fund lenders most flexible. Time-to-resolution and total friction cost should be weighted in any borrower scenario.