Mortgage Promissory Notes: A Guide And How To Find Yours

If you’re in the final stages of buying a house and reviewing documents (like your mortgage note) in anticipation of closing on your new home, congratulations! We know it’s been a long and expensive process, but you’ve risen to the challenge and will soon be sleeping under your own roof.

Or maybe you need to review your mortgage note because you want to see if now’s a good time to refinance or what to do if you’ve fallen behind on your mortgage payments. In that case, you might dread the process of digging up old paperwork that you haven’t looked at since the purchase of your home. We’ll help you find it and remind you what it all means.

If you’re looking to start the home buying process in the coming year and just reading ahead to get an idea of the whole process from start to finish, you’ll be asked to sign a mortgage note yourself in the not-too-distant future. It’s the last step in the process of getting a mortgage when you’re buying a home, so it’s important to understand how mortgage notes work.

What Is A Mortgage Note?

A mortgage note is a legal document you sign when you close on a mortgage for your new home. The contract includes the total home loan amount, the down payment and outlines some loan terms.

Mortgage notes set out all the terms of the mortgage between the borrower and lending institution as a part of the underwriting process, such as the frequency of mortgage payments and the down payment amount. It’s also sometimes referred to as a mortgage promissory note, or simply a note.

Mortgage Note Vs. Promissory Note

A promissory note is simply a contract between a lender and a borrower. It may or may not come with any security interest, more commonly referred to as collateral. Personal loans and credit card debt are examples of unsecured debt. In other words, these lenders take borrowers at their word that they’ll pay them back.

A mortgage note is a type of promissory note that is secured by the property purchased with the loan. It gives your lender the right to foreclose on the property if you fail to meet your repayment terms.

What Is Included In A Mortgage Note?

Information typically contained in a mortgage note includes:

• The total amount of the home loan
• Fixed versus adjustable-rate mortgage
• Down payment amount
• Monthly versus bimonthly mortgage payments
• Prepayment penalty guidelines
• Missed or late payment guidelines

Types Of Mortgage Notes

The information included in a mortgage note will depend on the type of home loan.

Common mortgage types include:

• Secured loan: Secured loans have something held as collateral. That means that if you default on the loan, you will be subject to foreclosure action by your lender to take ownership of the property so it can sell it and recoup as much of the loan as is possible. In the case of a home mortgage, the house would be considered the collateral. So, home loans are typically secured loans.
• Private loan: A private loan means the mortgage note was created by an individual, not a bank. This type of loan usually happens when an individual owns the property outright and creates a mortgage for the buyer. It’s often referred to as owner financing.
• Institutional loan: An institutional loan means a bank or lender created the mortgage. These loans are heavily regulated and must comply with the Dodd-Frank Act, a law enacted to improve accountability and transparency in the United States financial system.

Who Holds The Mortgage Note?

The mortgage provider typically holds the mortgage note unless they sell it.

Mortgage Note Buying And Selling Process

Remember, the note is a contract between the home buyer and the mortgage lender. It represents your promise to repay the mortgage – income to the lender – that they can sell immediately.

That’s exactly what they do. Almost immediately after the loan is originated, it is sold. If the home loan conforms to the standards set by Fannie Mae and Freddie Mac, they will buy the mortgage loan from the mortgage lender.

Mortgage Note FAQs

Here are common frequently asked questions about mortgage notes.

Why are mortgage notes important in real estate?

Mortgage notes are what make buyers obligated to repay their lenders. Once the note is signed by both parties, it is legally binding and allows the lender to take legal action if the borrower stops paying.

What does a mortgage note look like?

If it's been a while since you bought your home, you’re probably not 100% sure where the paperwork from your closing is, let alone what it all means – even if it did make sense at the time. Don’t feel bad. It’s not as if those documents make for an interesting read.

Here’s a sample form to help you jog your memory and to refer to as we discuss what a mortgage note contains.

How can I get a copy of my mortgage note?

Your mortgage note is part of your closing paperwork, so you should receive it when you close on your home. It’s a good idea to file your mortgage note away with any other important paperwork. But what if you lose your mortgage note, or it gets destroyed somehow?

If this happens, it’s not a big problem. You may be able to obtain a copy by searching the county records. You can also contact your loan servicer to get one.

Your loan servicer is the company that sends you billing statements every month. Under the Federal Servicer Act, they’re required to respond if you request information regarding your loan.

What if I default on my mortgage?

If you stop paying your mortgage or no longer meet the requirements of the note, you will be considered in default. After you are 30 days overdue on your mortgage payment, the lender will usually send a letter before they demand payment on the outstanding balance via an acceleration clause.

If you are unable to pay the outstanding balance, the next step is for the lender to foreclose on the home. Federal law requires lenders to wait 120 days before beginning the foreclosure process, and the exact process varies from state to state.

Once your lender completes the foreclosure process, they’ll take control of the property, and you’ll need to leave your home.

What’s the difference between a mortgage note and a deed?

A mortgage note is signed by the borrower and legally binds them to repay the lender according to the terms of the note. The deed is a document that records the transfer of the property from the grantor to the grantee.

The Bottom Line

At closing, you’ll sign your mortgage note, which is your agreement to pay the loan you’re taking out to pay for your house. You’ll also sign a mortgage that will be recorded with the property clerk as a lien on your home.

Should you wish to review your mortgage loan or the terms around prepayment or late payments, you can find them in the closing paperwork, or ask your current loan servicer for a copy.

Ready to start the process of applying for a mortgage or starting your refinance? Get started on the application process today!