Annuity
A series of fixed payments over time; the term also describes the present-value math used to price a mortgage note's payment stream.
An annuity is, broadly, a series of equal payments made at regular intervals over a period of time. The word has two relevant meanings for note holders: the financial product (an insurance or retirement annuity that pays a stream of income), and the mathematical concept (the present-value formula for valuing any level stream of payments). Both connect to note buying, because a standard amortizing mortgage note's payments form an annuity — and pricing that annuity is exactly how a note buyer values your note.
The annuity as math: how it prices a note
A fully amortizing mortgage note pays the same amount every month — that level stream is an ordinary annuity. Its present value is given by the annuity formula:
PV = pmt × (1 − (1 + i)^−n) ÷ i
where pmt is the monthly payment, i is the monthly discount rate (annual yield ÷ 12), and n is the number of payments. If the note has a balloon, you add its discounted value: + balloon ÷ (1 + i)^n. This is the literal engine behind a note offer and behind our note value calculator — your note's value is the present value of its payment annuity at the buyer's required yield.
The annuity as a product
Separately, an annuity product sold by an insurance company pays the owner a stream of income — immediately or starting at a future date — often used for retirement or to fund a structured settlement. Like a mortgage note, the right to receive annuity payments can sometimes be sold for a lump sum to a buyer who discounts the future payments to present value. (Some annuities, especially those funding structured settlements, require court approval to transfer.)
Why the annuity framing helps a note seller
Seeing your note as an annuity demystifies the offer:
- More payments or larger payments → higher present value
- Sooner payments → higher present value (distant payments are discounted more)
- A lower required yield (because the note is lower-risk) → higher present value
This is why a higher note rate, shorter remaining term, strong seasoning, and first-lien security all raise your price — they either increase the annuity's payments or reduce the discount rate applied to them.
Ordinary annuity vs. annuity due
A small technical point: an ordinary annuity pays at the end of each period (typical for mortgages), while an annuity due pays at the beginning. The difference slightly shifts present value. Most notes are ordinary annuities, and the standard formula above applies.
What it means when you sell
Mortgage Note Capital values your note as the present value of its payment annuity (plus any balloon). The cleaner, larger, sooner, and safer that stream, the higher the lump sum. If instead you hold an insurance/retirement annuity rather than a real-estate note, that is a different asset with different buyers and rules — but the underlying present-value logic is identical.