I've been investing with LC for a while, and just recently started to think about trading notes on Folio.
I was thinking of buying 60 month notes with 12 - 18 payments left, filtering them to ensure they have never been late and have not dropped credit rate. My thought is that if they haven't defaulted in the first 4 years and their credit is stable, there is a high probably they will pay off the loan.
The one question I have is why do I see so much advice to not pay a premium. My thoughts are the premium gets rolled into the yield to maturity, so if I can get a higher yield, I should still be ahead. What am I missing?
Yes, that makes sense. I wonder how often that happens deep into the loan. Thanks.
I wondered about this as well.
It's true you can lose the premium paid if a note pays off early, but is it more important to try to minimize a 3% loss from a prepayment, or a 100% loss from a default?