House In Village

Mortgage Notes: Everything You Need To Know

Jamie Johnson3 minute read
January 13, 2022

Most home buyers end up taking out a mortgage to finance the purchase of their home. After your lender agrees to loan you the money, you agree to a plan for how you’ll repay your mortgage. This agreement is what’s known as a mortgage note.

A mortgage note is what makes your contract official, so it’s not paperwork you want to misplace. If you’re looking to start the homebuying process in the coming year and hope to take out a mortgage, it’s important to understand how mortgage notes work.

What Is A Mortgage Note?

A mortgage note is a legal document that’s secured when a borrower obtains a mortgage loan. It can be bought and sold on the secondary market. Mortgage notes set out the terms of the mortgage between the borrower and lending institution, such as the frequency of mortgage payments and the down payment amount. It’s also sometimes referred to as a mortgage promissory note.

A mortgage note also states that your lender has a lien on your property and the right to begin foreclosure proceedings if you default on the loan. This provides added security to your lender since without the note, you’re not obligated to repay the loan.

As a homeowner, it’s important to understand that your lender can sell the mortgage note without your consent. There is a significant market for buying and selling mortgage notes, and lenders will often bundle notes together to sell them to investment companies.

So if you take out a mortgage, don’t be surprised if you end up with a different loan servicer. However, the terms of your mortgage will not change just because the note is sold. 

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What’s Included In A Mortgage Note?

A mortgage note is a legally binding contract that outlines the terms of how you’ll repay your loan. It will include the following information:

  • The total amount borrowed
  • The interest rate
  • The type of loan taken out
  • Repayment terms
  • Penalties and fees for missing mortgage payments
  • What happens if a borrower defaults on the loan

What Are The Different Types Of Mortgage Notes?

There are several different types of mortgage notes you’ll come across, and they are all a bit different. The type of mortgage note you receive will depend on the type of loan you took out.

Here are the three main types of mortgage notes:

  • Secured loan: If you take out a secured loan, that means your loan comes with some type of collateral. In the case of a mortgage, your home is used as collateral for the loan.
  • 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.

Mortgage Notes Vs. Promissory Notes

Mortgage notes and promissory notes are similar, but they aren’t the same thing. A mortgage note is a document that outlines the terms of the mortgage. It gives your lender the right to foreclose on the property if you fail to meet your repayment terms.

In comparison, a promissory note is kind of like an IOU that promises to repay the loan. Like a mortgage note, it outlines the terms of the agreement. But a promissory note isn’t recorded in the county land records.

Mortgage Note Example

Your mortgage note will outline the key terms of your agreement and state that you promise to repay the debt. It will include the property address and the date when you’re agreeing to these terms.

You can expect to sign a promise to pay, and the document will outline the monthly payments and when they are due. The note will also explain the interest, late fees, and anything else you need to know about your mortgage.

How To Get A Copy Of Your 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, there’s no reason to fret. You can 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.

The Bottom Line

When you close on your home, you’ll receive a mortgage note outlining the terms of your mortgage. A mortgage note is a promise to your lender that you’ll repay the loan, and it explains what happens if you default on your mortgage.

In the coming year, many people expect that inventory will start to return and housing prices will start to bounce back. If you’re interested in buying a home, then you can get started with a mortgage preapproval today.

Get approved to buy a home.

Rocket Mortgage® lets you get to house hunting sooner.

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Jamie Johnson

Jamie Johnson is a Kansas City-based freelance writer who writes about a variety of personal finance topics, including loans, building credit, and paying down debt. She currently writes for clients like the U.S. Chamber of Commerce, Business Insider, and Bankrate.