The mortgage note goes by a few names – promissory note and deed of trust note. You sign this document at the closing, when you finance a home. The note is one of the most important documents, next to the deed of trust that you sign.
Keep reading to learn why this document is so important.
What is a Mortgage Note?
The mortgage note is a contract between you and the lender. You give the lender your home as collateral for the money they lend you to buy the home. The note gives the lender the right to take your home (repossess) it if you don’t make your payments. The contract spells out the details of the agreement- read them carefully.
Your local county recorder will record the note, making it public record. The record shows the amount of the note and the lender that holds the lien on the property.
What’s Included in the Note?
Aside from the promise between you and the bank, the promissory note includes the following:
- The amount you borrowed
- The interest rate agreed upon
- The loan’s term
- The monthly due date
- The amount of late fees and circumstances in which the lender charges them
Who Holds the Mortgage Note?
Originally, the lender that provides the mortgage note holds it. But this may not be the case forever. Lenders sell mortgages on the open market every day. Your mortgage may start with one lender and move through a few others before the end of your term.
Lenders don’t need your permission to sell the note, either. They must provide you with notice before they sell it so that you know where to send your payment. They must also provide you with an extended grace period to offset any issues with making payments to the new lender.
No matter how many times your note changes hands, your terms don’t change. Everything on the note, including the loan amount, rate, term, and due dates remain the same. The only change you’ll see is who and where you make your payments. Rather than making your checks out to Bank A, for example, you’ll make them out to Bank B.
Do You Need a Copy of Your Note?
No one is going to come to ask for a copy of your mortgage note, but you should always have it. You receive a copy at the closing. Keep it in a safe place and if possible, create a digital version in the event that you have a fire or your documents get stolen.
If you don’t have a backup copy and you lose your original, you can get another copy of your mortgage note in one of the following ways:
- Search the county records and request a copy
- Contact your loan servicer and ask for a copy
What is the Deed of Trust?
People often confuse the mortgage note with the Deed of Trust, but they are two different things. The note is like the IOU. It’s the document that states that you owe the bank money and its terms.
A Deed of Trust or mortgage is the document that creates the lien on the property. In other words, if you don’t make your payments as promised in the note, the lender can take your home. They have first lien rights on the home.
The bottom line is that once you have a mortgage note, you must make your payments. If you fall more than three payments behind, the bank has the right to start foreclosure proceedings. In other words, the bank can take your home. The process takes as long as 12 months in some cases and you may be able to pay the past due amount and stop the foreclosure, but it will cost you a pretty penny.