What is a Mortgage Note?

A mortgage note is an agreement between two parties (a lender and a borrower) that outlines the terms of repayment regarding a specific piece of property. Both the obligations and rights of each respective party (lender and borrower) are outlined under the terms of the agreement. In layman’s terms, a mortgage note is simply the agreement outlining how a borrower will pay back a lender for a loan they gave them to buy a given piece of property. Mortgage notes are always secured to the piece of purchased property and are collateralized to that property for assurance on the lender’s part.

What Makes Up a Mortgage?

The main parts of a mortgage note include the terms of the loan, the principal amount, the interest rate of the mortgage, the monthly payment and the breakdown of that payment, the collateral, the payment schedule (You should always ask for an amortization if it’s not included or create your own to see how much is actually going towards interest) and when and where you’ll make payments. For the most part this is what makes up the terms of the mortgage note.

Who Owns a Mortgage Note and What Happens If the Loan Changes Hands?

The mortgage note is generally held by the mortgage provider but mortgage notes can get bought and sold. Nothing changes for the borrower if the note goes to a different loan servicer. The terms of the loan remain in effect except that payment is sent to a different party and the borrower will likely get a new account number with that party.

What Happens If Borrowers Default?

If a borrower defaults on repayment of a mortgage, the mortgage note is used by the borrower to start the foreclosure process. When this happens, a borrower has many negative ramifications. A borrower’s credit worthiness will be negatively impacted as soon as there is a 30-day late payment on the mortgage, after which the interest rate will also increase. Eventually the property will get sold in a foreclosure and the borrower can/will lose their home. Anyone considered defaulting should look to stopping payments on unsecured loans and debts first as your home and secured debts should always be first priority.

What Else Should You Know About Mortgages?

Mortgages serve a purpose and often times that purpose is to allow consumers to buy a home. Mortgages can do a great deal to aid in affordability for those that need it. However, mortgages aren’t something to aspire to holding, they’re a piece of debt and ultimately if you can avoid having one you should. Most people aren’t happy to pay their mortgage every month and a lifelong dream so for many Americans is to finally pay their mortgage down and be able to live without that burden on their shoulders every month.