What Is a Mortgage Note?

Nathan connects with individuals, communities, and news outlets to help educate them on money matters and stimulate financial awareness. He believes that achieving financial success begins with identifying your priorities and facing them head on. You may have seen Nathan on your local news station talking about using credit cards responsibly, building good credit, and more.

Sandra is qualified as a financial advisor with business accreditation and has an eye for detail. She got her start in the banking industry working with small businesses and startups – and she can tell a good deal from a shiny gimmick. Her passion lies in writing about personal finance and entrepreneurship.

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It’s all nervous giggles and sweaty palms as you iron out the last few details of owning your dream home. After the offer is accepted and you sign on the dotted line, those keys drop into your palm, and you’re ready to step over the threshold.

But let’s rewind to that dotted line and, cough, the mortgage contract. Do you plan on reading every sentence of each closing document? (Be honest.)

Now would be the time to learn what that final document – the mortgage note – is all about and why it’s important.

What Is a Mortgage Note?

A mortgage note is a legal contract that outlines the details of your mortgage loan. It can be issued by banks, financial institutions and homeowners offering owner financing.

A mortgage note includes:

• How much money you borrowed
• The size of your down payment
• The interest rate on the loan
• The terms of the loan (length of the loan, fixed versus variable interest rate)
• Payment due dates (weekly, biweekly or monthly)
• Penalties or fees (prepayment penalties, missed payment fees, etc.)

When you sign your mortgage note, you’re using your property to secure the loan. That means your home acts as collateral for the loan.

The mortgage note is filed with your local government and confirms that the lender has a lien on your home until you pay off your mortgage.

The lien allows your lender to foreclose on the home (the legal process of a lender repossessing and selling your home) if you can’t make your monthly mortgage payments. The mortgage note will tell you which scenarios will enter your loan into default, including the specific number of missed payments or other violations.

The mortgage note protects both the lender and the borrower. Without the mortgage note, the borrower wouldn’t be legally obligated to pay the lender back.

The borrower benefits in two ways. First, they know what’s expected to keep the loan in good standing. And second, because everything is outlined in the mortgage note, they know what their interest rate is, what the fees are and how they’re triggered. If there are any surprise changes, they can be appealed by the borrower.

A mortgage note also goes by several other names, including promissory note, house note or borrower’s note. Some states refer to a mortgage note as a deed of trust.

While the mortgage note and deed of trust are somewhat interchangeable, a deed of trust is different in significant ways:

• A deed of trust involves three parties: the lender, the borrower and a trustee. A mortgage note only involves two parties: the lender and the borrower.
• A deed of trust allows the trustee to begin the foreclosure process without having to go to court. This is known as nonjudicial foreclosure. With a mortgage note, a lender must sue through the court system to start the foreclosure process. This is known as judicial foreclosure.

A trustee is a third party (other than the lender or borrower) who owns the legal title of a property until it’s repaid by the borrower.