Note
Definition and meaning of Note in real estate.
A note, often called a promissory note, is a legally binding financial agreement in which a borrower promises to repay a specific loan amount to a lender under agreed-upon terms. It is the primary document that establishes the debt in a real estate transaction.
In more detail
This document outlines the critical terms of the loan, including the interest rate, payment schedule, late fees, and maturity date. While a mortgage secures the loan by placing a lien, or legal claim, on the property, the note is the borrower's personal promise to repay the debt.
Once signed, the lender can sell the note to other investors on the secondary mortgage market, which is where existing mortgages are bought and sold. Homebuyers must carefully review the note at closing to verify that the loan terms match their expectations.
Key facts
| Category | Mortgages & Financing |
|---|---|
| Also known as | Promissory note |
| Core purpose | Personal promise and contract to repay a debt |
| Marketability | Can be bought and sold on the secondary mortgage market |
At closing, a homebuyer signs a promissory note committing to pay the lender a specified sum monthly for thirty years at a fixed interest rate.
Frequently asked questions
Is a note the same as a mortgage?
No, the note is the personal contract to repay the debt, while the mortgage is the security instrument that allows the lender to foreclose if the note is not paid.
What happens to the note after the loan is paid off?
Once the debt is fully repaid, the lender marks the note as paid, cancels it, and returns the physical document to the borrower.