Definition:
A note, also called a promissory note, is a legal document in which the borrower agrees to repay a loan under specific terms. It outlines the amount borrowed, interest rate, repayment schedule, and consequences for not paying.
Example:
When Olivia buys a home, her lender gives her $350,000 to complete the purchase. She signs a note promising to repay that amount with 6% interest over 30 years. The note spells out the terms of her monthly payments and the lender’s rights if she stops paying.
Explanation:
The note is one of the most important loan documents in a real estate transaction. While the mortgage or deed of trust gives the lender the right to foreclose if the borrower defaults, the note is what creates the borrower’s personal obligation to repay the debt.
The note typically includes:
- Loan amount (principal)
- Interest rate (fixed or adjustable)
- Start date of the loan
- Term of the loan (15, 20, or 30 years)
- Monthly payment details
- Due dates and late fee terms
- Conditions for default and acceleration (requiring the full balance immediately)
If the home is ever refinanced or sold and the loan is paid off, the note is marked "paid in full" and satisfied.
Why is Note Important in Real Estate Transactions?
The note is important because it’s the official agreement that holds the borrower legally responsible for repaying the loan. For lenders, it’s their written proof of the debt. For buyers, it defines their long-term financial commitment. Understanding the note ensures the borrower knows exactly what they’re agreeing to and helps avoid surprises down the road. It’s a key part of securing and managing a mortgage.