In real estate finance, Discount refers to selling a promissory note before its maturity date for less than its outstanding principal balance. This typically occurs when a note holder wants to receive cash immediately rather than wait for future payments, and the reduced sale price reflects factors such as interest rate, risk, and time remaining on the note.
The term also describes an amount deducted in advance by a lender from the face value of a loan at origination, often expressed as discount points. In this context, the borrower receives less than the nominal loan amount, while the lender increases the effective yield on the loan. Discounts are commonly used as part of loan pricing and are considered a cost of borrowing.
