Mortgage Blog

What is a mortgage note?

A mortgage note is easiest described as a promissory note that provides a bank or mortgage company a lien on a piece of real estate until the full amount of the loan, plus interest, is repaid. A mortgage note for a first mortgage, used for purchasing or refinancing, provides the lender a senior, or first lien on the real estate. Second mortgages are also guaranteed by a promissory note, however, these take a “secondary” lien position.

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Parties to the promissory note

There are two parties to every mortgage note, the mortgagee and the mortgager. The mortgagee is the lender who has provided financing. Both parties agree to the terms of the mortgage and they are required to sign the final mortgage note.

Contents of the promissory note

When a borrower signs a mortgage note, they are agreeing to the following:

  • Terms of loan – The terms of the loan include the interest rate, late fees, payment amounts and any clauses related to prepayment. Terms will also include late payment fees and due dates for payment.
  • Escrow requirements – The lender may request that the borrower agree, through the mortgage note, to have their taxes and/or insurance payments escrowed. Not all lenders require escrows but if they do, it normally is explained in the language of the mortgage note.
  • Insurance requirements – Most lenders have very specific requirements for insurance coverage. In the event insurance is not part of escrow, the lender will provide a clause explaining the homeowner’s responsibilities.
  • Default information – In the event the homeowner fails to pay the mortgage as agreed, the mortgage note will also carry a default clause. These vary from state to state and explain the lender’s responsibilities and rights in the event the borrower does not fulfill the agreement.

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Home mortgage notes are signed by any borrowers who have agreed to be responsible for repayment of a mortgage. The document clearly explains the rights and responsibilities of both parties to the mortgage, namely the homeowner and the lender.

Term Defined:

Note: The evidence of indebtedness for a mortgage loan. A note is the instrument evidencing the indebtedness secured by a security instrument that sets forth the amount the owner owes the lender and the manner in which the debt is to be satisfied. The note establishes the payment terms, conditions under which prepayments may be made, and the lenders rights in the event of default. A written agreement between the mortgagor and the mortgagee specifying the amount and terms of repayment for a loan.

 

This blog is for informational purposes only.  Our opinion is not to be construed as the exact terms of your note.  We are not giving legal advise but just an opinion. Please consult your attorney ,title company or lender for any questions about a mortgage note.

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