What are Mortgage Notes and What Do They Look Like?
A mortgage note is a legal document between a lender and the borrower in a real estate transaction. It is a type of promissory note that is secured by a mortgage loan on a property. When a mortgage loan is granted by a lender (mortgagee), the mortgagor (borrower) signs the mortgage note promising to repay the loan according to the terms and conditions stated in the note, including the amount of the loan, the interest rate, length of the loan, and other conditions.
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Read on to learn more about what is a mortgage note.
What is a Mortgage Note?
The mortgage note is created by the lender of a mortgage loan and is one of the many documents a buyer or buyers will sign at closing on a property purchase. Once signed, the borrower is obligated to repay the loan according to the terms in the note.
Because a mortgage is a secured loan, in the event that the borrower does not adhere to the terms of the mortgage note, such as making late or incomplete payments, the lender can take possession of the property through the foreclosure process.
What Does a Mortgage Note Look Like?
Most mortgage notes appear similar and may vary by the state you live in and the type of loan you are getting, for example, a fixed-rate mortgage, an adjustable rate mortgage, or a government-sponsored mortgage.
Here is a sample note
for a fixed rate loan.
What Information Does a Mortgage Note Contain?
All mortgage notes will contain the following information:
- Amount Borrowed. This is the total amount you owe on the mortgage
- Interest Rate. Early in the mortgage application process an interest rate is locked-in by the buyer. That interest rate, whether fixed or adjustable, is stated on the note.
- Down Payment Amount. This is the amount that you put down on the purchase of the property.
- Name of Borrower. Your name will be on the document.
- Name of Lender. The name of the lender will also be on the document.
- Repayment Plan. The terms of repayment will be stated, including the start date and maturity date of the loan. In most loans, payments are required monthly and the amount due is state here. This section will also tell you where the payments are to be sent.
- Failure to Repay. The note will include a section called: “Borrower’s Failure to Repay as Required.” This states the final due date for monthly payment, late charges, and conditions of default (failure to pay).
Types of Mortgage Notes
Mortgage notes can vary based on the kind of lender and the kind of loan used to buy a home:
- Secured loan note. This note uses the real estate property to secure the loan. If the borrower fails to repay the loan according the note’s terms, the lender may take possession of the property.
- Private loan note. A private loan is one provided by a private party, such as an individual, as the lender. A private loan note will have unique conditions of this type of lender.
- Institutional loan note. This type of loan is more common because they come from a traditional mortgage lender, such as a credit union or bank. These loans are more heavily regulated by federal and state lending rules.
Who Holds the Mortgage Note?
Lending institutions and private lenders may choose to sell the mortgage notes they originate. This is called the “secondary market” where investors buy and sell these financial instruments.
Don’t worry! If your note is sold your mortgage is still safe. You will receive instructions that your loan has been sold and you will be told where to make payments. In some cases, the note is sold by your lender but they retain the servicing, meaning that you will continue to send payment to your lender.
Is it Possible to Sell a Mortgage Note?
Yes. If you have paid off your mortgage and own the note, you may sell it. Private individuals and investors in the secondary mortgage market may be interested in purchasing the note.
How to Get a Copy of Your Mortgage Note
Always hold on to all of the documents you received at closing. Your mortgage note will be included with these papers. If your note is lost, you can get a copy of your mortgage note from your lender. If your loan was sold and is being serviced by a new lender or servicing company, contact the most recent servicer for a copy of the note.
Why Savvy Consumers Choose CU SoCal
For over 60 years CU SoCal has been providing financial services, including mortgages, Home Equity Loans, HELOCs, car loans, personal loans, credit cards, and other banking products, to those who live, work, worship, or attend school in Orange County, Los Angeles County, Riverside County, and San Bernardino County.
Please give us a call today at 866.287.6225 today to schedule a no-obligation loan consultation with a CU SoCal Member Services specialist.
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