Taking out a mortgage loan is no easy feat. 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 ones in this pile? That would be your mortgage letter. The mortgage note is a crucial (and legal) document that describes the most important details of your loan – and exactly what you as a borrower agree to.
Are you preparing to take out a mortgage loan? Here’s what you need 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 describes the terms of your mortgage loan. It contains information such as your loan amount, the interest rate, the due dates of your monthly payments, and any other terms and conditions of your mortgage lender that you must adhere to.
You review this information 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 keep it until you have repaid the loan in full.
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A mortgage note is a multi-page legal document that contains important information about your mortgage agreement.
It typically contains sections on:
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Your promise to repay the loan
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Interest, including the interest rate and any interest rate changes you can expect (if you have a variable rate mortgage)
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Monthly mortgage payments, including payment due date, payment amount, and loan due date
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Your right to repay the loan early
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Any additional loan fees or late fees you may encounter
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Course of action if you do not pay
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Required Legal Notices
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You sign your mortgage note at closing, but the note remains important once you receive the keys to your new home. It will also come into play at various points in your homeownership, and depending on how you approach repayment, it may even end up back in your hands near the end.
Here are a few situations where your mortgage note may come up:
It’s quite common for mortgage notes to change hands as soon as you sign your closing papers. Many lenders sell their loans on the secondary market, freeing up cash to lend to new borrowers. When this happens, your mortgage note is sold and transferred to another loan servicer. You will then continue to make payments as agreed in the invoice, only to the new manager instead of to your old one.
If your mortgage letter is sold, you will receive notice well in advance telling you when and where to send your new payments.
If you default on your mortgage – meaning you stop paying it – the lender or servicer will use the mortgage note to prove that you have not met the agreed upon terms and may foreclose on your home. This would mean losing your property.
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When you have paid off your mortgage in full, your lender will give you the mortgage note, stating that the loan balance has been paid off and that all terms of the agreement have been met.
When you refinance your mortgage, you are technically paying off one loan and taking out another. When this happens, your old note will be closed and a new note will be created detailing the terms of the new loan. Your mortgage lender or servicer will keep this new note until you repay the loan balance.
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People often confuse mortgage notes with other legal documents, such as deeds and promissory notes. While these have some similarities, there are important differences to keep in mind.
A mortgage note is simply the document that outlines the terms of the mortgage loan and serves as a 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 when purchasing cars (car loans) and other situations where money is borrowed.
On the other hand, a deed is a separate legal document that gives you the right to own your property. A deed of trust shows that your home serves as collateral for the loan in question. It specifies that if you don’t repay the loan, the mortgage lender can foreclose on the house and sell it to make up for the losses. A trust deed is similar to a mortgage agreement and which one you use depends on your state of residence.
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A note is a document that describes 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 with your closing papers. If you can’t find yours, you can 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 their mortgage terms – on the secondary market to free up money for new loans. If this happens to your mortgage note, it will change to where you need to make your monthly payments, but not the terms of your loan. You must receive advance notice of this change.
A signed mortgage note holds both the borrower and the lender accountable in a mortgage agreement, so it is a necessary part of any home loan. Some lenders simply call this a “promissory note,” although it serves the same purpose.
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