Key takeaways
A mortgage be aware is your signed promise to repay your property mortgage.
It outlines the mortgage quantity, rate of interest, compensation schedule, and default phrases.
It’s completely different from a mortgage or deed of belief, which secures the mortgage together with your property.
Lenders can promote your mortgage be aware, however your phrases received’t change.
While you purchase a house and take out a mortgage, you signal a number of paperwork. One of the vital vital paperwork is the mortgage be aware. Typically known as a promissory be aware, this legally binding contract lays out the small print of your mortgage and your promise to repay it. Whether or not you’re looking houses on the market in Austin, TX or contemplating shopping for a home in Seattle, WA, understanding how a mortgage be aware works is crucial.
On this Redfin article, we’ll break down what a mortgage be aware is, what’s included, the way it works, and why it issues.
What’s a mortgage be aware?
A mortgage be aware is the written settlement between you (the borrower) and your lender that specifies:
The quantity you borrowed
The rate of interest
The compensation schedule (month-to-month funds, time period size, due dates)
What occurs in the event you miss funds or default
Consider it because the “IOU” of your property mortgage. In contrast to your mortgage or deed of belief, which secures the mortgage in opposition to your property, the mortgage be aware itself is your private promise to repay.
What’s included in a mortgage be aware
Whereas the precise format could range by lender and state, most mortgage notes embody:
Mortgage quantity (principal): The entire you borrowed.
Rate of interest: Mounted or adjustable.
Cost phrases: Month-to-month cost quantity, due date, and mortgage time period (e.g., 15 or 30 years).
Late charges and default penalties: How a lot you’ll pay in the event you miss deadlines.
Acceleration clause: Offers the lender the suitable to demand the total steadiness in the event you default.
Prepayment phrases: Whether or not you’ll be able to repay your mortgage early with out penalty.
Signatures: Each you and the lender (or their licensed consultant) should signal for it to be enforceable.
Sorts of mortgage notes
Not all mortgage notes are the identical. The kind you signal will depend on your mortgage construction and settlement together with your lender. Widespread varieties embody:
Mounted-rate mortgage be aware: Outlines a mortgage with an rate of interest that stays the identical for the whole time period, making month-to-month funds predictable.
Adjustable-rate mortgage (ARM) be aware: Consists of phrases the place the rate of interest can change after an preliminary fastened interval, primarily based on market situations.
Balloon mortgage be aware: Requires smaller month-to-month funds at first however ends with a big lump-sum “balloon” cost on the finish of the time period. Extra widespread in business or short-term lending.
Curiosity-only mortgage be aware: Lets debtors pay solely the curiosity for a set interval earlier than switching to full principal and curiosity funds.
Convertible mortgage be aware: Permits an adjustable-rate mortgage to transform right into a fixed-rate mortgage underneath sure situations.
Mortgage be aware vs. mortgage (or deed of belief)
Debtors typically confuse the mortgage be aware with the mortgage itself. Right here’s the distinction:
Doc
What It Does
Mortgage be aware
Your promise to repay the mortgage. Outlines phrases and situations.
Mortgage/deed of belief (safety instrument)
The authorized doc that secures the mortgage with your property as collateral. It offers the lender rights to foreclose in the event you don’t pay.
>>>Learn: What’s a Mortgage?
Mortgage be aware vs. promissory be aware
The phrases “mortgage note” and “promissory note” are sometimes used interchangeably, however there’s a refined distinction:
Promissory be aware: A broad authorized doc wherein a borrower guarantees to repay a debt. It could possibly apply to many kinds of loans, not simply mortgages.
Mortgage be aware: A particular kind of promissory be aware tied to a house mortgage. It contains detailed phrases just like the mortgage quantity, rate of interest, compensation schedule, and penalties of default.
In brief, all mortgage notes are promissory notes, however not all promissory notes are mortgage notes. The “mortgage” half means your property secures the debt, giving the lender the suitable to foreclose in the event you don’t pay.
Why a mortgage be aware issues
The mortgage be aware is important for a number of causes:
Proof of debt: It’s the official report that you simply owe cash.
Borrower safety: It clearly states your rights and obligations, stopping disputes.
Investor use: Lenders can promote mortgage notes on the secondary market (to buyers, Fannie Mae, Freddie Mac, and so on.). Your mortgage servicing could change, however your phrases keep the identical.
Authorized enforcement: When you cease making funds, the lender makes use of the be aware in courtroom to show default.
How can I get a replica of my mortgage be aware?
When you want a replica of your mortgage be aware, you’ve a couple of choices:
Out of your lender or mortgage servicer: Contact the corporate that manages your mortgage funds. They’re required to give you a replica upon request.
Closing paperwork: It is best to have acquired a replica of the mortgage be aware whenever you closed on your property. Examine your closing packet or digital data out of your title firm.
County recorder’s workplace: In some states, a model of the be aware could also be recorded together with your native county clerk or recorder of deeds. You possibly can request a replica from them, although not all notes are public report.
On-line servicing portal: Many mortgage servicers allow you to obtain vital mortgage paperwork instantly out of your on-line account.
Tip: When you’re planning to refinance, promote your property, or just wish to verify your mortgage phrases, having your mortgage be aware readily available could make the method smoother.
Are you able to promote or purchase mortgage notes?
Sure – however sometimes solely lenders and buyers do.Mortgage notes are purchased and bought as monetary property. For instance:
Performing notes: Debtors are making funds on time—these are decrease threat.
Non-performing notes: Debtors are behind on funds—these carry increased threat and are bought at a reduction.
What occurs in the event you lose your mortgage be aware?
In case your unique mortgage be aware will get misplaced, lenders can typically depend on digital copies, county data, or sworn statements to implement the mortgage. Debtors don’t often have to maintain the unique, however having your copy is smart for reference.
