How to Sell a Land Note With a Low Interest Rate in Texas

If you originated a seller-financed land note in Texas with an interest rate that now seems low compared to market conditions, you may be wondering how that rate affects your ability to sell the note and the price you can expect to receive. It is a valid concern. Interest rates play a direct role in how note buyers calculate their purchase price, and a low rate on your note means the buyer earns less income per dollar invested, which translates into a deeper discount for you. However, a low interest rate does not make your note unsellable — far from it. Notes with lower rates are bought and sold every day in the Texas market, and with the right approach and the right buyer, you can still achieve a fair price for your investment.

The Texas land note market has seen a wide range of interest rates over the years. During periods of low prevailing rates, many sellers originated notes at five, six, or seven percent, thinking those rates were reasonable at the time. When the broader interest rate environment shifts upward, those notes become less attractive to buyers who can earn higher yields on newly originated notes or on other investments. This dynamic creates a pricing challenge for sellers of low-rate notes, but it also creates an opportunity for those who understand how the math works and what strategies are available to minimize the impact.

This guide will explain exactly how the interest rate on your note affects buyer pricing, walk you through the mathematical relationship between note rates and purchase prices, discuss strategies you can use to improve your offer despite a low rate, and help you set realistic expectations for the sale. Whether your note carries a rate of four percent or seven percent, the information here will help you navigate the selling process effectively and get the best price the market will bear for your specific note.

Why Interest Rate Matters So Much to Note Buyers

The Yield Equation — How Buyers Make Money

To understand why your note's interest rate matters, you need to understand how note buyers make money. A note buyer is an investor who deploys capital in exchange for a stream of future payments. The return on that investment — the buyer's yield — is determined by the relationship between the price they pay and the payments they receive. If the buyer pays $40,000 for a note that will generate $60,000 in total payments over its remaining life, the buyer's yield is the annualized rate of return that equates a $40,000 outlay today with $60,000 received over time.

Here is where your interest rate comes in. Your note's interest rate determines how much of each monthly payment is interest income versus principal repayment. A higher interest rate means more of each payment is income, which means the buyer earns more per dollar invested. A lower interest rate means less income per payment, which means the buyer needs to pay a lower purchase price to achieve their target yield. The relationship is mathematical and unavoidable — at any given target yield, a lower note rate always results in a lower purchase price.

The Gap Between Your Rate and the Buyer's Target Yield

The critical number in note pricing is the gap between your note's interest rate and the buyer's target yield. If your note carries an eight percent rate and the buyer requires a twelve percent yield, the gap is four percentage points, and the discount needed to bridge that gap is relatively modest. If your note carries a five percent rate and the buyer requires the same twelve percent yield, the gap is seven percentage points, and the discount must be significantly larger to make the math work.

To illustrate with a concrete example, consider two notes that are identical in every way except interest rate. Both have a $50,000 remaining balance, 120 remaining payments, and the same borrower and collateral. Note A carries a nine percent rate with a monthly payment of $633. Note B carries a five percent rate with a monthly payment of $530. A buyer targeting a twelve percent yield would pay approximately $42,500 for Note A (a fifteen percent discount) but only approximately $35,500 for Note B (a twenty-nine percent discount). The $7,000 difference in purchase price is driven entirely by the interest rate differential. For more detail on how discounts are calculated across different note structures, review this analysis of discounts when selling a land note in Texas.

Market Rate Context — What Counts as "Low" Today

What constitutes a low interest rate is always relative to the prevailing market environment. In the early 2020s, with mortgage rates near historic lows, a six percent seller-financed note was considered quite reasonable. In a higher-rate environment where conventional mortgages are at seven percent or above, that same six percent rate looks comparatively low and will generate less buyer enthusiasm than it would have a few years earlier. The note buying market responds to the same interest rate dynamics that drive the broader financial markets, and buyer yield requirements tend to move in tandem with prevailing rates.

In the current Texas market, notes with interest rates below six percent are generally considered low-rate notes that will face deeper discounts. Notes in the six to eight percent range are considered moderate and will receive standard market pricing. Notes above eight percent are considered attractive from a yield perspective and will typically command the best pricing. If your note falls in the below-six-percent category, the strategies discussed later in this guide will be particularly relevant to maximizing your sale price.

The Impact of Low Rates Across Different Note Structures

Fully Amortizing Low-Rate Notes

If your low-rate note is fully amortizing — meaning the monthly payments cover both principal and interest and the note will be completely paid off by the end of the term — the interest rate impact on pricing is straightforward. The buyer calculates the present value of the remaining payment stream at their required yield, and the lower your rate, the lower the present value. The longer the remaining term, the greater the impact, because the rate differential compounds over a longer period.

One modest advantage of fully amortizing low-rate notes is that the monthly payment includes both principal and interest, so the buyer is receiving principal payments that reduce their risk exposure over time. This principal amortization provides a natural de-risking mechanism that partially offsets the income reduction from the lower rate. A buyer who purchases a low-rate fully amortizing note knows that their investment will be gradually returned through principal payments, even though the interest income is less than they would receive on a higher-rate note.

Low-Rate Notes With Balloon Payments

Low-rate notes with balloon payments present a compounded challenge because the buyer faces both the reduced income from the low rate during the payment period and the refinancing risk associated with the balloon. However, there is a silver lining: if the balloon date is relatively near, the buyer's holding period is short, which means the low rate has less time to drag down the overall return. A five percent note with a balloon due in three years is less affected by the low rate than a five percent note with no balloon and fifteen years of remaining payments, simply because the buyer is exposed to the below-market rate for a shorter period.

If your low-rate note has a balloon, the buyer's pricing will reflect both the rate discount and the balloon risk, and these can compound to produce a deeper total discount. However, if the balloon is due relatively soon and the borrower appears capable of satisfying it, the short holding period can actually work in your favor by limiting the impact of the low rate. The interaction between rate and balloon timing is complex, and a buyer with experience in Texas land notes can model the various scenarios to arrive at a fair price for your specific combination of terms.

Interest-Only Low-Rate Notes

Interest-only notes with low rates face the steepest pricing challenges because the monthly payment consists entirely of interest income — there is no principal amortization reducing the buyer's exposure over time. The buyer receives the low interest rate as their sole source of return until the principal is repaid, which typically happens through a balloon payment at the end of the term. This means the buyer is fully exposed to the below-market rate for the entire holding period, and the discount needed to achieve their target yield is correspondingly larger.

If you hold an interest-only note with a low rate, the pricing reality may be more challenging than for other note structures, but the note can still be sold. The key factors that will support better pricing are a strong LTV ratio, a reliable borrower, and solid collateral. These factors reduce the buyer's overall risk and allow them to be somewhat more flexible on the yield they require, which translates into a smaller discount for you. A buyer who is confident in the collateral and the borrower may accept a slightly lower yield on an interest-only low-rate note than they would on a riskier note, recognizing that the reduced income is offset by reduced risk.

Strategies for Maximizing Your Price on a Low-Rate Note

Leverage Your Note's Other Strengths

A low interest rate is just one factor among many that determine your note's pricing. If your note has strong characteristics in other areas — excellent payment history, long seasoning, low LTV, desirable collateral, complete documentation — those strengths can partially offset the rate-related pricing impact. Note buyers evaluate the complete package, and a note that is weak on rate but strong on everything else will still receive a competitive offer relative to notes that are weak across the board.

When you present your note to a buyer, do not lead with the rate — lead with your strengths. Highlight the borrower's flawless payment record, the equity cushion from the low LTV, the desirability of the collateral location, and the completeness of your documentation. Frame the rate as one factor among many rather than the defining characteristic of the note. A buyer who sees the full picture will assign appropriate weight to all the factors, not just the rate. For a comprehensive overview of all pricing factors, this resource on what determines note value in Texas provides useful perspective.

Consider a Partial Sale to Minimize Rate Impact

A partial note sale can be an effective strategy for minimizing the impact of a low interest rate. When you sell a partial interest — a specified number of monthly payments — the buyer's holding period is shorter, which means the below-market rate has less time to erode the return. A buyer who requires a twelve percent yield might apply a steep discount to purchase all 180 remaining payments on a five percent note, but a much more modest discount to purchase just 60 of those payments, because the rate differential has far less impact over a five-year period than over a fifteen-year period.

By selling a partial interest, you can access a meaningful lump sum of cash while retaining the remaining payments for yourself. After the buyer collects their purchased payments, you resume receiving the monthly payments under the note's original terms. This approach is particularly attractive for low-rate note holders who need some cash but do not want to take the full pricing hit of selling the entire note at a deep discount. For more detail on how partial sales work, read about full versus partial land note sales in Texas.

Explore Whether a Rate Modification Is Feasible

If you have a good relationship with your borrower and they are amenable, modifying the note to increase the interest rate before selling can improve your pricing. The borrower would need to agree to the modification, and you would typically need to offer something in return — perhaps extending the term to keep the monthly payment the same or similar despite the higher rate. A formal loan modification agreement would document the changed terms and, if a deed of trust modification is required, it would need to be recorded in the county records.

This strategy is not always practical. Many borrowers will not agree to a rate increase, and the negotiation process can be time-consuming. However, if the borrower is receptive — particularly if you can frame the modification as beneficial to them through a lower monthly payment via term extension or other concession — the resulting higher rate can meaningfully improve your note's marketability and the price you receive from a buyer.

Work With a Buyer Who Values Quality Over Rate

Not all buyers weight the interest rate equally in their pricing models. Some buyers are highly yield-driven and will offer deep discounts on any note below a certain rate threshold. Others take a more holistic approach, weighting factors like collateral quality, payment history, and borrower reliability more heavily relative to rate. Working with a buyer who values note quality holistically rather than fixating on the rate alone can result in better pricing for your low-rate note.

Longhorn Note Buyers evaluates every Texas land note based on the complete picture — not just the rate, but the payment history, LTV, collateral, borrower profile, and overall risk characteristics. With over $46 million in Texas notes purchased since 2007, Longhorn understands that a low-rate note with excellent fundamentals can be a better investment than a high-rate note with significant risk factors. This holistic approach means that sellers of low-rate notes with strong other characteristics can expect fair, competitive offers from Longhorn that reflect the true quality of their investment.

Setting Realistic Expectations

What to Expect in Terms of Pricing

Sellers of low-rate notes should expect deeper discounts than sellers of higher-rate notes, all else being equal. The mathematical relationship between rate and price is unavoidable, and no amount of salesmanship or negotiation can override the fundamental economics. A five percent note will always sell at a deeper discount than a nine percent note with the same remaining balance, payment history, and collateral. The question is not whether the rate will affect the price — it will — but whether the price you receive still makes selling worthwhile given your circumstances.

To put numbers on it, a low-rate note with otherwise strong characteristics might sell at a discount of twenty to thirty percent, compared to a fifteen to twenty percent discount for a comparable note with a market-rate coupon. The exact spread depends on the specific rate, the buyer's yield requirements, and the note's other characteristics. Getting a quote from an experienced buyer is the only way to know what your specific note will bring, and the quote is free and without obligation.

When It Still Makes Sense to Sell a Low-Rate Note

Even with a deeper discount, selling a low-rate note can make excellent financial sense in several situations. If you have a higher-return investment opportunity that would more than offset the discount, selling and reinvesting is a smart move. If the low rate means you are earning a below-market return on your capital and you could redeploy that capital more efficiently, selling improves your overall portfolio return. If you need cash for a specific purpose and the note is your most liquid asset, the discount is simply the cost of accessing that liquidity. And if managing the note has become burdensome and you value the simplicity of a lump sum, the emotional and practical benefits of selling may outweigh the financial cost of the discount.

The worst reason to hold a low-rate note is simply because you do not want to accept the discount. If the note is earning you a below-market return and you have better uses for the capital, holding the note out of stubbornness costs you money every month in the form of missed opportunity. The discount is not a penalty — it is the market's way of pricing the time value of money and risk, and accepting it can free you to make better financial decisions going forward.

Ready to Sell Your Note?

If you hold a land note with a low interest rate in Texas and you want to find out what it is worth in today's market, Longhorn Note Buyers can provide a free, no-obligation quote that gives you the concrete numbers you need to make an informed decision. With over $46 million in Texas notes purchased since 2007 and a 100% close rate on quoted deals, Longhorn evaluates every note holistically and provides fair offers that reflect the complete picture, not just the rate. Whether your note carries four percent or seven percent, Longhorn's experienced team will analyze it thoroughly and give you a transparent assessment of its market value.

Call Longhorn Note Buyers today at (210) 828-3573 or visit longhornnotebuyers.com to get started. There is no cost, no obligation, and no pressure. A quote simply gives you the information you need to evaluate your options, and Longhorn's team is happy to walk you through the analysis and answer any questions about how the interest rate affects your specific note's pricing.

Frequently Asked Questions About Selling Low-Rate Notes in Texas

What interest rate is considered "low" for a Texas land note?

In the current market, notes with interest rates below six percent are generally considered low-rate notes that will face deeper discounts from buyers. Notes in the six to eight percent range are considered moderate and receive standard pricing. Notes above eight percent are considered attractive and typically command the best percentage-of-balance offers. These thresholds are not fixed — they shift as the broader interest rate environment changes — but they provide a useful benchmark for evaluating where your note falls on the spectrum.

Can I still get a fair offer on a note with a four or five percent rate?

Yes, you can receive a fair offer on a low-rate note, though the discount will be deeper than on a higher-rate note. Fair pricing for a low-rate note means a price that accurately reflects the buyer's required yield, the time value of money, and the note's risk characteristics. A reputable buyer will explain their pricing transparently and will not apply an unfair premium simply because the rate is low. Getting quotes from multiple experienced buyers ensures that you are receiving market-competitive pricing for your specific note.

Would modifying the interest rate to a higher level improve my sale price?

Yes, if the borrower agrees to a rate modification, increasing the interest rate will directly improve the pricing you receive from a buyer. Even a one or two percentage point increase can make a meaningful difference in the purchase price. However, the borrower must consent to the modification, and you may need to offer a concession — such as extending the loan term to keep the payment similar — to secure their agreement. A formal modification agreement is required, and the costs and effort of negotiating the modification should be weighed against the expected improvement in pricing.

Is a partial sale better than a full sale for low-rate notes?

A partial sale can be an effective strategy for low-rate notes because it limits the buyer's exposure to the below-market rate to a shorter period, which typically results in a smaller percentage discount on the purchased payments. If you need some cash but do not want to accept the full discount of selling the entire note, a partial sale allows you to access liquidity while retaining the remaining payment stream. The trade-off is that you receive less total cash upfront compared to a full sale. Comparing both options side by side with your buyer will help you determine which approach best serves your financial goals.

How do I know if selling is the right choice despite the deeper discount?

Selling a low-rate note makes sense when the financial or personal benefit of having the lump sum exceeds the cost of the discount. Run the numbers: compare the total payments you would receive by holding the note to the lump sum you would receive by selling, and factor in what you would do with the cash. If you can redeploy the capital at a return that exceeds the note's yield, selling is financially advantageous. If you need the cash for a specific purpose that improves your life or financial position, the discount is the cost of achieving that improvement. The key is to make the decision based on your actual circumstances and real alternatives, not on a theoretical comparison to holding forever.