Then divide the amount of profit by the cost of the note. The return on investment is called the yield. The term of a mortgage is the length of time the mortgage lasts before it must be paid in full. Most home buyers prefer thirty-year mortgages because they want lower monthly payments. Here's an example of how the monthly payment amount changes according to the term of the mortgage.
Most investors prefer short-term mortgages.
Second, because of the time value of money, a short mortgage is worth more than a long mortgage. Therefore, the faster the mortgage pays off, the less you will have to discount it to produce an attractive yield. A long-term mortgage requires a much larger discount to provide the same yield. Let's use the same example mortgage to demonstrate how the time value of money affects yield. Again, the only thing we are changing is the term of the loan.