Blog Guides Lending and mortgage
What is a mortgage note, in the real estate industry?
Top blog articles
When you want to buy a house and apply for a mortgage loan, you go through a process called underwriting. This is when the bank checks if you’re able to pay back the loan and if the house is worth enough to serve as security for the loan in case you can’t pay for some reason. That’s when a special kind of contract called a mortgage note comes into the picture. So, what is a mortgage note and how does it work?
Think of a mortgage note as the instruction manual for your home loan. It lays out all the details about how you’re going to pay back the money you borrowed to buy your house. Basically, it’s the paperwork that says, “Here’s how much you owe, here’s how you’re going to pay it back, and here’s what happens if you don’t.” Jokes aside, it’s a crucial official document because it’s what you sign to seal the deal on your mortgage. That said, a mortgage note may not be provided in states where deeds of trust are common.
What is a mortgage note, in real estate agreements?

A mortgage note is a legal document that describes all the aspects of your loan for buying the house. It explains how you’ll pay back the loan. When you finish all the paperwork for buying the house, you sign the mortgage note. That’s why, it’s important that this document accurately shows all the terms of the agreement between you and the bank. If it doesn’t, it needs to be fixed right away. We advise you to carefully review the mortgage note alongside an attorney to confirm that all terms are precise and comprehensive. Remember that this document should offer protection for both the borrower and the lender.
What does a mortgage promissory note entail?
A mortgage note outlines every detail of the agreement between the borrower and the bank or lender (the lending institution). To better understand how the note is drafted, you can check out the example of a mortgage note provided by the Department of Housing and Urban Development (HUD).
It covers key information such as the total amount of the loan, how much was paid upfront as a down payment, and whether the borrower makes monthly or bi-monthly payments. It also specifies whether the interest rate on the loan stays the same (fixed rate mortgage) or can change over time (adjustable rate mortgage, ARM). Another important thing it mentions is whether there’s a penalty for paying off the loan early.
The mortgage note is typically accompanied by a promissory note laying out the repayment terms. It contains financial specifics of how the loan will be paid back, including the interest rate and repayment method.
Simply put, a mortgage promissory is where you promise to pay back the loan. It also specifies what happens if you’re late with your payment or miss a payment altogether. Here’s what it includes:
- The loan amount
- Your interest rate
- The monthly payment amount and the due dates
- Details about the property
- Your right to pay off the loan early; if there’s a prepayment penalty
- ARM cap if any
What are the different types of mortgage notes?
Mortgage promissory notes come in different types to suit various financial needs. These include fixed-rate, adjustable-rate, interest-only, and balloon mortgage notes. Each has unique repayment structures and terms to fit different borrower preferences and financial situations. Knowing these types is important for both borrowers and lenders because it affects how repayment, interest rates, and other key aspects of the loan work.
Who gets to hold the mortgage note?
When you borrow money for a house, you’ll receive a copy of the mortgage note when you finish the paperwork. But the original note stays with your mortgage lender or servicer – unless they sell it to other investors later. The note is like a security and can be sold multiple times, but it won’t change your monthly payments or any other loan terms, even if it’s sold.
If, by any chance, you lose the note, you can ask your lender for another copy. They might need a written request. You can also check with your local recording office and get a copy.
What happens if the borrower defaults on the mortgage?

If you miss payments, your lender can begin foreclosure proceedings using the mortgage note. They’ll first send you a notice of default. Unless you work out a plan with your lender, like forbearance or a modification, they’ll keep moving forward with foreclosure until they sell your home. This process can vary in duration depending on state laws. But ultimately, you could lose your home and face eviction. Foreclosure can seriously damage your credit score and finances, so it’s best to avoid it if possible.
Read more: What is CTC in real estate?
What happens when you completely repay your mortgage?
Once you’ve paid off your loan, the lender will give you back the original promissory note. And, it’s marked as canceled. This means you’re no longer obligated to repay. They’ll also remove any claim they had on your home’s title (this varies depending on where you live), so you fully own it without any debt.
Last thoughts
A mortgage note is a legal document for the loan agreement between a lender and borrower when buying real estate. Once signed, it’s legally binding and covers details such as loan terms, monthly payments, interest, and penalties for late payments.
It also includes a promissory note, where the borrower promises to repay the loan under certain conditions and agrees to the consequences if they don’t pay. A mortgage note (and a promissory note) remain valid until the borrower fully pays off the mortgage and owns the property without any debt.
Read more: What is a mortgage recast?
Your opinion matters, leave a comment