House In Village

Mortgage Promissory Notes: A Guide And How To Find Yours

Jamie Johnson6-minute read
January 13, 2022

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 once 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 – a contract for the making of a loan in return for repayment of the loan with interest – that’s secured with the home the loan is used to buy.

Mortgage notes set out all 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, or simply a note.

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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.

What Information Does A Mortgage Note Include?

A mortgage note is a legally binding contract that should include all the terms and conditions of the mortgage as agreed upon between you and your lender. In other words, if your lender told you that you would be charged an interest rate of 5%, but your mortgage note says 5.25%, you will be charged 5.25% unless you challenge the document and have it changed before signing it.

It will include the following information:

  • Total amount borrowed
  • Interest rate charged
  • Type of home loan used to purchase the property
  • Repayment terms
  • Penalties late mortgage payments
  • Procedures in case of mortgage default

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 are repaying.

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.

Fannie Mae and Freddie Mac requirements incorporate the Dodd-Frank consumer protection mandates.

Mortgage Vs. Mortgage Loan Vs. Mortgage Note: What’s The Difference?

Almost everyone uses the word “mortgage” as a shorthand for the home loan used to purchase a home. But, legally speaking, a mortgage is actually the security instrument recorded with the property clerk as a lien on your property. A mortgage loan is the loan secured with the mortgage. A mortgage note is the promissory note for the loan secured by the property via the mortgage.

A mortgage note states that your lender has a lien on your property and the right to begin foreclosure proceedings if you default on the loan. Filing the mortgage creates the lien that fulfills the lender’s property rights pursuant to the mortgage, or for some, your deed of trust. This provides added security because it gives them the right to sell the property they acquire through foreclosure – your home – if you breach the repayment contract in order to limit any losses they incurred on the loan.

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Mortgage Notes Vs. Promissory Notes

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.

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.

These lenders can and do sue borrowers to obtain judgments to repay the debt, but they don’t have the automatic right to take possession of property unless a security interest accompanies the note, as in the case of home loans.

Secured Loans Vs. Unsecured Loans: What’s The Difference?

A secured loan comes with some type of collateral. In real estate, the property serves as the security for the loan. 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.

What Do Lenders Do With Their Mortgage Notes?

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.

What Happens To My Loan When My Lender Sells My Mortgage Note?

As a homeowner, it’s important to understand that your lender can sell the mortgage note without your consent. So, if you take out a mortgage, don’t be surprised if you end up with a different loan servicer. You’ll receive a notice in the mail alerting you to where to send your payments.

When you sign a mortgage note, you are entering into a legally binding agreement to repay the loan. It’s binding on both you and the lender, plus anyone that buys that note is bound by its terms. The terms of your mortgage cannot be changed by the note’s new owner. 

Our friends at Rocket Mortgage® retain the mortgage servicing rights on mortgages they originate so that their clients can continue to expect the same award-winning customer service they’ve grown accustomed to during the mortgage process.

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, it’s not a big problem. 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: Mortgage Notes Govern The Repayment Of Your Home Loan

At closing, you’ll sign your mortgage note, which is your agreement to pay the loan you’re given 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 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? Start your application online now.

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.