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A mortgage note is one of many closing documents a borrower signs when closing on a home loan. It outlines the high points of the agreement between the borrower and the mortgage lender, including how the borrower must repay the loan and what happens if the borrower defaults.
What is a mortgage note?
A mortgage note, also known as a promissory note, is a legal record of the borrower’s promise to repay the loan. It spells out the terms of the mortgage, including the monthly payment and interest rate and consequences for late or missed payments.
Sometimes, the terms “mortgage note” and “mortgage” are used interchangeably, but the note is different from the mortgage itself. The mortgage — known as a deed of trust in some states — is the document that secures the loan, giving your mortgage lender or servicer the right to take possession of your home and sell it should you fail to repay it as bound by the note.
Both documents contain similar information about the loan, but the mortgage includes much more detail, such as the legalities of ownership and other particulars.
What is included in a mortgage note?
The mortgage note includes sections regarding the borrower’s “promise to pay” the loan as well as consequences should the borrower pay late or miss a payment altogether. It also includes:
- Amount you’re borrowing
- Interest rate (if an adjustable-rate mortgage, this is the introductory rate)
- Amount of monthly payment and due date
- Information about the property
- Information about the borrower’s “right to prepay”
- ARM cap information, if applicable
Who holds the mortgage note?
As the borrower, you’ll receive a copy of your mortgage note at closing, not the original. The original mortgage note is held by your mortgage lender or servicer until (or unless) the lender sells it on the secondary market — most lenders do this relatively quickly after closing. That’s because the note is a security instrument, often pooled in mortgage-backed securities bought and sold by investors. Your note might be sold multiple times until you pay the loan off, but this won’t impact your monthly payment or any other terms of the loan.
How to get a copy of your mortgage note
If you misplaced your copy of the mortgage note, request another copy from your mortgage lender or servicer. Some lenders require you to make this request in writing. You could also retrieve a copy through your local recording office.
What happens to your note if you default
If you stop making payments on your mortgage, the mortgage lender or servicer has the right to initiate foreclosure. Your lender will use the note to move forward with these proceedings, starting with a notice of default. Unless you get in touch with your lender to come up with a relief or repayment plan (such as forbearance or a modification), the foreclosure process will continue until the home is sold. This can take time to complete (foreclosure laws vary by state), but once it happens, you’ll be evicted. Foreclosure has serious implications for your credit and finances, so avoid this at all costs.