In real estate, what does it mean to "discount" a loan?

Discounting a loan refers to the practice of selling the loan for less than its face value. This can occur for a variety of reasons, such as the lender wanting to quickly obtain liquidity or the borrower needing to exit the loan agreement early. By selling the loan at a discount, the buyer of the loan assumes the risk and potential benefits of collecting the remaining payments and can profit if the payments received exceed the discounted purchase price.

This concept is particularly relevant in secondary mortgage markets, where loans are often bought and sold. The sale price is influenced by the interest rate of the loan compared to current market rates, the creditworthiness of the borrower, and the overall economic conditions. It's important to understand that the term "discount" in this context does not pertain to the payoff of the loan or refinancing, but rather to the transaction of the loan itself in the marketplace.