Closing on a mortgage loan is no 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’d be your mortgage note. The mortgage note is a critical (and legal) document that outlines the key details of your loan — and what exactly 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 run.
Read more: What to expect when closing on a house
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A mortgage note is a legal document detailing 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’ll review these details and sign the document at the end of the closing process, solidifying your agreement to the terms and your commitment to repay the loan. Your lender will also sign the note and hold onto it until you fully repay the loan.
Learn more: How to get the lowest mortgage rate possible
A mortgage note is a multi-page legal document that contains key information regarding your mortgage agreement.
It will typically contain sections on:
Your promise to repay the loan
Interest, including the interest rate and any interest rate changes you can expect (if you have an adjustable-rate mortgage)
Monthly mortgage payments, including the due date of payments, the payment amount, and the maturity date of the loan
Your right to repay the loan early
Any additional loan charges or late fees you may face
Courses of action if you fail to make payments
Required legal notices
For more information, see the U.S. Department of Housing and Urban Development’s detailed example of a mortgage note.
Dig deeper: How a prepayment penalty on a mortgage works
You’ll sign your mortgage note at closing, but the note doesn’t stop being important once you’ve received the keys to your new home. It will also come into play at various points in your homeownership tenure, and depending on how you go about repayment, it could even end up back in your hands by the end of it.
Here are a few situations in which your mortgage note may come up:
It’s pretty common for mortgage notes to change hands once you sign your closing papers. Many lenders sell their loans on the secondary market, allowing them to free up cash to loan to new borrowers. When this happens, your mortgage note will be sold and transferred to another loan servicer. You will then continue making payments as agreed upon in the note, just to the new servicer instead of your old one.
If your mortgage note is sold, you should receive a notice well ahead of time 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’ve failed to meet the agreed-upon terms and may move to foreclose on your home. This would mean losing your property.
Learn more: What to expect when facing foreclosure
When you pay off your mortgage in full, your lender will give you possession of the mortgage note, with a notation that the loan balance has been paid off and all terms of the agreement have been fulfilled.
If you refinance your mortgage, you’re technically paying off one loan and taking out another one. When this happens, your old note is closed, and a new note is created detailing the new loan’s terms. Your mortgage lender or servicer holds this new note until you repay the loan balance.
Read more: 6 times when it makes sense to refinance your mortgage
People often confuse mortgage notes with other legal documents, like 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 mortgage loan terms, serving as the legally binding agreement between you (the borrower) and your lender. Mortgage notes are a type of promissory note (just one specific to mortgages); there are also promissory notes in car buying (auto loans) and other situations that involve borrowing money.
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 your home will serve as collateral for the loan in question. It states that if you fail to 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.
Learn more: How to change your name on a house deed
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 may sell mortgage notes — the legal documents binding borrowers to their mortgage terms — on the secondary market to free up funds for new loans. If this happens to your mortgage note, it will alter where you need to send your monthly payments but not any of the terms of your loan. You should receive a notice of this change ahead of time.
A signed mortgage note holds both the borrower and the lender accountable in a mortgage agreement, so it’s a necessary part of any home loan. Some lenders may simply call this a “promissory note,” though it serves the same purpose.
This article was edited by Laura Grace Tarpley.
