Key takeout
A mortgage note is a signed promise to pay back your mortgage. It provides an overview of the loan amount, interest rate, repayment schedule, and default terms. That is different from a mortgage or trust deed that secures a loan with your property. Lenders can sell mortgage notes, but conditions remain unchanged.
When you buy a house and take out a mortgage, you sign a bunch of documents. One of the most important documents is a mortgage note. Sometimes called a promissory note, this legally binding agreement explains the details of your loan and the promise to repay it. Whether you’re browsing a home for sale in Austin, Texas, or considering buying a home in Seattle, Washington, we understand how mortgage memos work.
This Redfin article will analyze what a mortgage note is, what it contains, how it works, and why it is important.
What is a mortgage note?
A mortgage note is a written agreement between you (the borrower) and your lender.
The amount borrowed from the interest rate is the amount in the repayment schedule (monthly payment, period, due date).
Think of it as the “iou” of your mortgage. Unlike your mortgage or trust deed that secures a loan for your property, the mortgage note itself is your personal repayment promise.
What is included in the mortgage memo
The exact format may vary by lender and state, but most mortgage notes include:
Loan amount (principal): Total borrowed. Interest rate: Fixed or adjustable. Payment Terms: monthly payment amount, due date, and loan term (for example, 15 or 30 years). Late Fees and Default Penalties: The amount to be paid if you miss a deadline. Acceleration clause: In default, it gives lenders the right to request all remaining. Prepayment terms: Whether you can repay your mortgage early without penalty. Signature: Both you and the lender (or their approved representative) must sign it so that it is enforceable.
Types of mortgage notes
Not all mortgage notes are the same. The type of signing depends on the loan structure and contract with the lender. Common types are:
Fixed-Rate Mortgage Note: Provides a summary of your loan at interest rates that remain the same throughout your term, making monthly payments predictable. Adjustable Mortgage (ARM) Note: This includes conditions that allow interest rates to change after an initial fixed period based on market conditions. Balloon Mortgage Note: You will need to pay monthly at first, but at the end of the semester you will end up with a massive chunk of “balloon” payments. It is more common in commercial or short-term loans. Interest Only Mortgage Note: Borrowers may only pay interest for the set period before switching to full principal and interest payments. Convertible Mortgage Note: Allows adjustable interest rate loans to be converted to fixed interest rate loans under certain conditions.
Mortgages and Mortgages (or Trust Deeds)
Borrowers often confuse mortgage notes with the mortgage itself. The differences are as follows:
Document what it is doing and beware of your promise to pay off your loan. We will provide an overview of the terms of use. Mortgage/Trust Deed (Security Means) A legal document that secures a loan in your home as collateral. If you don’t make a payment, the lender will give you a foreclosure.
>>>Read: What is a mortgage?
Mortgage Notes vs. Promised Notes
The terms “mortgage note” and “promised note” are often used interchangeably, but there are subtle differences.
Promise instrument: A wide range of legal documents that promise to borrowers to repay their debts. It can be applied to many types of loans, not just mortgages. Mortgage Notes: A certain type of promissory note tied to a mortgage. This includes detailed terms such as the loan amount, interest rate, repayment schedule, and default results.
In short, all mortgage notes are promissory notes, but not all promissory notes are mortgage notes. The “mortgage” section means that your home will secure debt and grants the lender the right to seize them if they do not pay.
Why mortgage notes are important
Mortgage notes are important for a number of reasons.
Proof of debt: It is an official record of how you borrow money. Borrower Protection: It clearly states your rights and obligations and prevents disputes. Investor Use: Lenders can sell mortgage notes in the secondary market (e.g. Investors, Fannie Mae, Freddie Mac, etc.). Your loan services may change, but your terms will remain the same. Legal Enforcement: If you stop paying, the lender uses a memo in court to prove the default.
How do I get a copy of my mortgage memo?
If you need a copy of your mortgage memo, there are a few options.
From a lender or loan servicer: Contact the company that manages your mortgage payments. You must provide a copy on request. Closing Document: You will need to receive a copy of your mortgage note when you close at home. Check the closed packet or digital record from the title company. County Recorder Office: In some states, you can record versions of notes to a local county clerk or act recorder. Not all notes are official records, but you can request a copy. Online Services Portal: Many loan servicers allow you to download important loan documents directly from your online account.
Tip: If you’re planning on refinancing, selling your home, or simply checking the terms of your loan, you can have a mortgage note on hand to make the process even smoother.
Can I sell or buy mortgage notes?
Yes – However, it is usually only done by lenders and investors. Malt notes are bought and sold as financial assets. for example:
Running Notes: The borrower is making payments on time. These are less risky. Defective Note: The borrower is late in making payments. These are risky and are sold at discounts.
What happens if you lose your mortgage memo?
If your original mortgage note gets lost, lenders can often rely on digital copies, county records, or sworn statements. Borrowers usually don’t need to maintain the original, but it is wise to refer to the copy.
