What is a mortgage note, and why do you need one?

Closing a mortgage loan is not quick. The process typically 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 an important (and legal) document that outlines the basic details of your loan — and exactly what you’re agreeing to as a borrower.

Are you preparing for a mortgage? Here’s what you should know about your mortgage note and what it means for you in the long run.

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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, interest rate, the due dates of your monthly payments, and any other terms specified 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, cementing your agreement to the terms and your commitment to repay the loan. Your lender will also sign the note and keep it until you repay the loan in full.

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A mortgage note is a multi-page legal document that contains basic information related to your mortgage agreement.

It will usually contain sections on:

• Your promise to repay the loan

• Interest, including your interest rate and any interest rate changes you can expect (if you have an adjustable-rate mortgage)

• Your monthly mortgage payments, including the payment due date, payment amount, and loan due date

• Your right to repay the loan early

• Any additional loan fees or late fees you may face

• Courses of action if you fail to make payments

• Legal Notices Required

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You’ll sign your mortgage note at closing, but the note doesn’t stop being important once you receive the keys to your new home. It will also be triggered at different stages of your home ownership period, and depending on how you make your repayments, it may end up in your hands again by the end of the repayment period.

Here are some situations where your mortgage note may appear:

It is very common for your mortgage notes to change once 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 provider instead of the old one.

If your mortgage note is sold, you should receive notice ahead of time telling you when and where to send your new payments.

If you default on your mortgage — which means you stop making payments on it — your lender or servicer will use the mortgage note to prove that you failed to meet the agreed-upon terms and may move to foreclose on your home. This means losing your property.

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When you pay off your mortgage in full, your lender will give you possession of the mortgage note, noting that the loan balance has been paid and all terms of the agreement have been met.

If you refinance your mortgage, you technically pay off one loan and take out another. When this happens, your old note is closed, and a new note is created detailing the terms of the new loan. The mortgage lender or servicer keeps this new note until you pay off the loan balance.

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People often confuse mortgage bonds with other legal documents, such as deeds and promissory notes. While these share some similarities, there are key differences to keep in mind.

The Mortgage Note is simply the document that sets forth the terms of your mortgage loan and is a legally binding agreement between you (the borrower) and your lender. A mortgage note is a type of promissory note (only one is for mortgages); There are also promissory notes in car purchases (car 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. The deed of trust shows that your home will serve as security for the loan in question. It stipulates that if you fail to repay the loan, the mortgage lender can seize the home and sell it to recoup its losses. A deed of trust is similar to a mortgage agreement, and which one you use depends on your state of residence.

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The note is a document that specifies 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 signed your mortgage note at closing, so you must include a copy in your closing paperwork. If you can’t find a copy for 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 bonds—legal documents that bind borrowers to the terms of their mortgage—in the secondary market to free up funds for new loans. If this happens to your mortgage note, it will change where you need to send your monthly payments but won’t change any of the terms of your loan. You should receive notice of this change in advance.

A signed mortgage note holds responsibility for both the borrower and lender in the mortgage agreement, so it is a necessary part of any home loan. Some lenders may simply call this a “promissory note,” although it serves the same purpose.

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