Legal Definitions - mortgage note

A mortgage note is a legal document that serves as a borrower's written promise to repay a loan used to purchase or refinance real estate. It specifies the terms of the loan, including the principal amount borrowed, the interest rate, the payment schedule, and the consequences of default. While the mortgage itself creates a lien on the property as collateral, the mortgage note is the document that establishes the personal debt and the obligation to repay the money.

Here are some examples to illustrate the concept of a mortgage note:

• Example 1: Purchasing a New Home
  Sarah and Tom are buying their first home. After their loan application is approved, they sign numerous documents at closing. Among these is a mortgage note, which explicitly states that they owe the bank $300,000, agree to an interest rate of 4.5%, and will make monthly payments for the next 30 years. This note is their personal commitment to repay the loan, separate from the mortgage document that places a lien on the house itself.

  How this illustrates the term: This scenario clearly shows the mortgage note as the written promise to repay a specific sum of money for a real estate purchase, detailing the key financial terms of the debt.

• Example 2: Refinancing an Existing Property
  Years after buying his initial home, David decides to refinance his mortgage to get a lower interest rate. When he closes on the new loan, he signs a new mortgage note. This new note replaces the old one, outlining the updated loan amount (which might include any remaining principal from the old loan plus closing costs), the new, lower interest rate, and a revised payment schedule. The original mortgage note is then considered satisfied and no longer valid.

  How this illustrates the term: This example demonstrates that a mortgage note is created not just for new purchases but also for refinancing, establishing a new set of repayment obligations and terms for an existing property.

• Example 3: Commercial Real Estate Development
  A real estate development company, "Urban Builders Inc.," secures a loan from a commercial bank to construct a new office building. As part of the financing agreement, a representative from Urban Builders Inc. signs a mortgage note. This note details the multi-million dollar loan amount, the variable interest rate tied to a market index, and the specific repayment milestones linked to construction phases. If Urban Builders Inc. fails to meet these obligations, the note outlines the bank's recourse.

  How this illustrates the term: This example highlights that mortgage notes are used in commercial real estate transactions as well as residential ones, serving as the fundamental promise to repay a large-scale loan for property development, with specific terms tailored to the project.