Key takeaways
A mortgage word is your signed promise to repay your private home mortgage.
It outlines the mortgage quantity, rate of interest, compensation schedule, and default phrases.
It’s completely different from a mortgage or deed of belief, which secures the mortgage together with your property.
Lenders can promote your mortgage word, however your phrases gained’t change.
While you purchase a house and take out a mortgage, you signal loads of paperwork. One of the vital necessary paperwork is the mortgage word. Typically known as a promissory word, this legally binding contract lays out the main points of your mortgage and your promise to repay it. Whether or not you’re looking houses on the market in Austin, TX or contemplating shopping for a home in Seattle, WA, understanding how a mortgage word works is crucial.
On this Redfin article, we’ll break down what a mortgage word is, what’s included, the way it works, and why it issues.
What’s a mortgage word?
A mortgage word is the written settlement between you (the borrower) and your lender that specifies:
The quantity you borrowed
The rate of interest
The compensation schedule (month-to-month funds, time period size, due dates)
What occurs in the event you miss funds or default
Consider it because the “IOU” of your private home mortgage. Not like your mortgage or deed of belief, which secures the mortgage in opposition to your property, the mortgage word itself is your private promise to repay.
What’s included in a mortgage word
Whereas the precise format might differ by lender and state, most mortgage notes embody:
Mortgage quantity (principal): The entire you borrowed.
Rate of interest: Mounted or adjustable.
Fee phrases: Month-to-month fee quantity, due date, and mortgage time period (e.g., 15 or 30 years).
Late charges and default penalties: How a lot you’ll pay in the event you miss deadlines.
Acceleration clause: Offers the lender the best to demand the total stability in the event you default.
Prepayment phrases: Whether or not you possibly can repay your mortgage early with out penalty.
Signatures: Each you and the lender (or their licensed consultant) should signal for it to be enforceable.
Forms of mortgage notes
Not all mortgage notes are the identical. The sort you signal will depend on your mortgage construction and settlement together with your lender. Widespread varieties embody:
Mounted-rate mortgage word: Outlines a mortgage with an rate of interest that stays the identical for the complete time period, making month-to-month funds predictable.
Adjustable-rate mortgage (ARM) word: Consists of phrases the place the rate of interest can change after an preliminary fastened interval, based mostly on market situations.
Balloon mortgage word: Requires smaller month-to-month funds at first however ends with a big lump-sum “balloon” fee on the finish of the time period. Extra widespread in business or short-term lending.
Curiosity-only mortgage word: Lets debtors pay solely the curiosity for a set interval earlier than switching to full principal and curiosity funds.
Convertible mortgage word: Permits an adjustable-rate mortgage to transform right into a fixed-rate mortgage below sure situations.
Mortgage word vs. mortgage (or deed of belief)
Debtors usually confuse the mortgage word with the mortgage itself. Right here’s the distinction:
Doc
What It Does
Mortgage word
Your promise to repay the mortgage. Outlines phrases and situations.
Mortgage/deed of belief (safety instrument)
The authorized doc that secures the mortgage with your private home as collateral. It provides the lender rights to foreclose in the event you don’t pay.
>>>Learn: What’s a Mortgage?
Mortgage word vs. promissory word
The phrases “mortgage note” and “promissory note” are sometimes used interchangeably, however there’s a refined distinction:
Promissory word: A broad authorized doc through which a borrower guarantees to repay a debt. It will probably apply to many sorts of loans, not simply mortgages.
Mortgage word: A selected kind of promissory word tied to a house mortgage. It consists of detailed phrases just like the mortgage quantity, rate of interest, compensation schedule, and penalties of default.
In brief, all mortgage notes are promissory notes, however not all promissory notes are mortgage notes. The “mortgage” half means your private home secures the debt, giving the lender the best to foreclose in the event you don’t pay.
Why a mortgage word issues
The mortgage word is vital for a number of causes:
Proof of debt: It’s the official document that you just owe cash.
Borrower safety: It clearly states your rights and obligations, stopping disputes.
Investor use: Lenders can promote mortgage notes on the secondary market (to buyers, Fannie Mae, Freddie Mac, and many others.). Your mortgage servicing might change, however your phrases keep the identical.
Authorized enforcement: In the event you cease making funds, the lender makes use of the word in court docket to show default.
How can I get a duplicate of my mortgage word?
In the event you want a duplicate of your mortgage word, you will have a couple of choices:
Out of your lender or mortgage servicer: Contact the corporate that manages your mortgage funds. They’re required to give you a duplicate upon request.
Closing paperwork: You need to have obtained a duplicate of the mortgage word if you closed on your private home. Examine your closing packet or digital information out of your title firm.
County recorder’s workplace: In some states, a model of the word could also be recorded together with your native county clerk or recorder of deeds. You’ll be able to request a duplicate from them, although not all notes are public document.
On-line servicing portal: Many mortgage servicers allow you to obtain necessary mortgage paperwork immediately out of your on-line account.
Tip: In the event you’re planning to refinance, promote your private home, or just wish to affirm your mortgage phrases, having your mortgage word available could make the method smoother.
Are you able to promote or purchase mortgage notes?
Sure – however usually solely lenders and buyers do.Mortgage notes are purchased and offered as monetary property. For instance:
Performing notes: Debtors are making funds on time—these are decrease threat.
Non-performing notes: Debtors are behind on funds—these carry greater threat and are offered at a reduction.
What occurs in the event you lose your mortgage word?
In case your authentic mortgage word will get misplaced, lenders can usually depend on digital copies, county information, or sworn statements to implement the mortgage. Debtors don’t often have to preserve the unique, however having your copy is smart for reference.
