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Why are mortgage purchases discounted? The whole transaction is based on the concept of the Time Value of Money which says that money today is worth more than money tomorrow. It is a financial version of the old adage that a bird in hand is worth two in the bush. Cash in hand has more value because it can be invested, or used to meet some material need. Cash tomorrow is money that is not liquid, can not be used, or can not be touched. Consequently, its worth today is diminished. Time Value of Money is equally important to the investor and the seller. Investors buy at a discount to financially justify making the long term commitment to the mortgage. Mortgagees sell to gain control and liquidity.
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