A mortgage note is a written promise to repay a certain amount of money, with interest, within a certain period of time. It shows in detail what the borrower is obligated to pay back. A mortgage note is secured by a mortgage, a document showing transfer of ownership of real estate.
The type of loan being used is shown on the mortgage note. A few common types are fixed rate mortgage (FRM), adjustable rate mortgage (ARM), balloon payment mortgage and interest-only loan. Fixed rate mortgages have a fixed interest rate and payments, and adjustable rate mortgages have a fluctuating interest rate and payment amount. When a loan has an amortization schedule longer than the maturity date, a balloon payment mortgage is being used. An interest-only loan is a loan where only interest is paid monthly, with principal due at maturation.
Mortgages can be sold from investor to investor. It is not uncommon for a person’s mortgage to be sold several times over the course of the loan. This generally does not change the loan itself, just who receives the payments. The benefit to the purchaser of the loan is that they stand to receive monthly payments for the life of the loan. A downside can be if a person defaults on the loan, in which case the investor can lose out on the investment.
In order to change the actual terms of a mortgage loan, a person must refinance the loan. A person might do this to get a better interest rate or to remove or add a person’s name to the loan. This involves going through all of the steps of a normal mortgage loan application. A new mortgage note is issued and signed, and the new note takes the place of the old one.
If someone defaults on a mortgage, he or she can be foreclosed upon by the lender. A default means that the borrower is not paying as agreed to in the mortgage note. Many lenders will work with individuals who are in default until they can get back on their feet and begin making regular payments again.
Some consumers use a produce-the-note strategy when going through foreclosure. This strategy is used to ensure that the lender can produce a mortgage note showing they have the legal right to sue. If the lender cannot produce the note, it is believed that it does not have the legal right to the mortgage.