Closing a mortgage loan is not a quick matter. The process usually takes a few hours on closing day and requires reviewing and signing dozens of documents and forms.
One of the most important in this pile? That would be your mortgage note. The mortgage note is a crucial (and legal) document that outlines the key details of your loan – and exactly what you're agreeing to as a borrower.
Are you preparing to take out a mortgage loan? Here's what to know about your mortgage note and what it means for you in the long term.
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A mortgage note is a legal document that details the terms of your mortgage loan. It includes information such as your loan amount, the interest rate, the due dates of your monthly payments, and any other conditions set by your mortgage lender that you must adhere to.
You will review these details and sign the document at the end of the closing process, confirming your agreement to the terms and your commitment to repay the loan. Your lender will also sign the note and hold it until you repay the loan in full.
A mortgage note is a multi-page legal document that contains key information about your mortgage agreement.
It will usually include sections on:
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Your promise to repay the loan
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Interest, including the interest rate and any changes in the interest rate you can expect (if you have an adjustable rate mortgage)
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Monthly mortgage payments, including payment due date, payment amount, and loan maturity date
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Your right to repay the loan early
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Any additional loan charges or late fees you may face
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Actions to take if you fail to make payments
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Required legal notices
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You'll sign your mortgage note when you close, but the note doesn't end once you've received the keys to your new home. It will also come into effect at different points in your home ownership tenure, and depending on how you approach repayment, it could even end up back in your hands by the end of that period.
Here are some situations where your mortgage note may arise:
It is quite common for mortgage notes to change hands after you sign your closing papers. Many lenders sell their loans on the secondary market, allowing them to free up cash to lend to new borrowers. When this happens, your mortgage note will be sold and transferred to another loan servicer. You will then continue to make payments as agreed in the note, just to the new servicer instead of your old one.
If your mortgage note is sold, you should receive notification well in advance telling you when and where to send your new payments.
If you default on your mortgage – meaning you stop making payments on it – the lender or servicer will use the mortgage note to show that you have failed to meet the terms of the agreed upon and you may move to foreclose on your home. This would mean losing your property.
When you pay your mortgage in full, your lender will give you the mortgage note in their possession, with a note that the balance of the loan has been paid and that all the terms of the agreement have been fulfilled.
If you refinance your mortgage, you are technically paying off one loan and taking out another. When this happens, your old note is closed, and a new note is created detailing the terms of the new loan. Your mortgage lender or servicer holds this new note until you repay the loan balance.
People often confuse mortgage notes with other legal documents, such as deeds and promissory notes. While these share some similarities, there are key differences to keep in mind.
A mortgage note is simply the document that outlines the terms of the mortgage loan, serving as the legally binding agreement between you (the borrower) and your lender. Mortgage notes are a type of promissory note (only one specific to mortgages); there are also promissory notes in buying cars (car loans) and other situations related to borrowing money.
On the other hand, a deed is a separate legal document that gives you the right to own your property. A trust deed shows that your home will act as collateral for the loan in question. It states that if you do not repay the loan, the mortgage lender can seize and sell the house to make up for its losses. A deed of trust is similar to a mortgage agreement, and which one you use will depend on your state of residence.
A note is a document that outlines the terms of your mortgage loan, including the interest rate, payment, term, and other details. It legally binds you to the terms and requires you to repay the loan.
You sign your mortgage note at closing, so a copy should be included in your closing papers. If you can't find yours, you should be able to ask your mortgage lender or servicer for a copy, or you can contact your local records department.
Lenders can sell mortgage notes — the legal documents that bind borrowers to the terms of their mortgage — on the secondary market to free up money for new loans. If this happens to your mortgage note, it will change where you need to send your monthly payments but not any of the terms of your loan. You should receive notice of this change in advance.
A signed mortgage note holds the lender and borrower accountable in a mortgage agreement, so it is a necessary part of any home loan. Some lenders may call this a “promissory note,” although it serves the same purpose.