What is a mortgage note?
A mortgage note is one of many closure documents with borrowers signs when closing a mortgage. Simply put, it represents a mortgage for a particular borrower.
Technically, mortgage notes are a security measure. When borrowers approach a mortgage, lenders usually sell mortgage notes to Fannie Mae and Freddie Mac. These will be packaged in mortgage backed securities (MBS) in the secondary mortgage market. This memo guarantees that the borrower has agreed to repay the loan.
You may hear a mortgage note called a “promissory note” or a “mortgage promissory note.” Many mortgage lenders use these terms interchangeably. Like a mortgage note, a promissory note is a record of the borrower’s promise to pay off the loan.
The promissory note on a mortgage includes the borrower’s “payment promise.” It also lists outcomes if the borrower pays late or misses payment.
- The amount you owe
- Interest rate (for adjustable mortgages, this is the adoption rate)
- Monthly payment amount and due date
- Property information
- Information about borrowers’ “prior payment rights”
- Arm cap information, if applicable
Who has a mortgage memo?
As a borrower, you will receive a copy of your mortgage notes when it closes, not the original. The original mortgage notes are held by the mortgage lender or servicer until (or excluded) by the lender in the secondary market. Most lenders do this relatively quickly after closing.
This is because the memo is a security measure that is often pooled with mortgage-backed securities purchased and sold by investors. Your notes may be sold multiple times until you pay off the loan.
If it’s the default, what happens to a mortgage note?
If you stop paying your mortgage, your mortgage lender or servicer can legally begin the foreclosure process. Lenders use mortgage notes to move forward with these procedures, starting with default notifications.
Unless you contact the lender and come up with a loss mitigation plan (such as leniency or modification), the lender will proceed with the foreclosure lawsuit until the home is sold. As foreclosure laws vary from state to state, this process may take some time to complete. However, when your house is sold, you will be kicked out. Foreclosures will have a serious impact on your credit, finances and impact when you can buy the home again, so avoid this at all costs.
What happens to your mortgage notes when you pay your mortgage in advance?
If you pay your mortgage ahead of time, that means you will pay off the loan early. Whether or not you pay your mortgage early on with additional payments or lump sum payments, once your loan is paid, your mortgage note is considered to be fulfilled.
What happens to your promissory note when you pay off your mortgage?
Once you fully repay your mortgage, the lender will provide you with the original promissory note, but it will be cancelled. This means you have been relieved of your promise to repay. The lender will also release the holds that you had in your home title (this will vary by state), so you will have it clearly for free.
If I refinance, what will happen to my mortgage notes?
When you refinance your mortgage, the lender will replace the original mortgage memo with a new one. Once the refinance is complete, your original mortgage memo will be cancelled. You will then make all future payments for a new refinance memo.
