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- A promissory note is a document you sign when you get a mortgage, promising to pay back a lender under certain terms.
- The note includes information such as how much you're borrowing, the interest rate, and the first and last payment dates.
- The lender keeps your promissory note until you pay off the mortgage, but you can request a copy for your own personal records.
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What is a promissory note?
During the homebuying process, your lender will have you sign a promissory note.
What's a promissory note? It's a written legal document you'll sign to promise you will repay the company what it lends you to buy your home.
A promissory note explains the terms of your mortgage, including how much you're borrowing and the interest rate, term length, and monthly payment schedule.
The lender holds onto the promissory note while you pay off your mortgage, but you can request a copy. Once you've made the final payment, the company will mark your original note as paid and return it to you.
Promissory notes vs. mortgages
You'll sign two legal documents when you borrow money to buy a home: a promissory note and a mortgage.
What's the difference? A promissory note explains the terms of borrowing money, and by signing it, you're agreeing to those terms.
A mortgage is a legal agreement about what happens should you fail to pay back your mortgage according to the terms spelled out in the promissory note. The mortgage will likely state that your home will be foreclosed upon if you continuously default on payments.
Anyone can find your signed mortgage in the public records. Although a promissory note is legally binding, it isn't publicly recorded.
What information is included on a promissory note?
Here's what you can expect to find in a promissory note:
- Your name and signature.
- Lender's name.
- The date you sign the promissory note.
- Principal, or the amount you borrow for your mortgage. If you borrow $200,000 to buy your home, your principal is $200,000.
- Interest rate, or the fee the lender charges for lending you money. Interest will be expressed as a percentage, such as 2.85% or 3.5%.
- Term, or the amount of time you'll spend paying back your mortgage, such as 30 or 15 years.
- Due date of the first mortgage payment.
- Due date of the last mortgage payment. If you have a traditional mortgage that requires you to pay back your mortgage in equal monthly installments, this date will be the day of your final monthly payment. If you have another type of mortgage, like a balloon mortgage, it could be the date you have to pay a lump sum.
A promissory note includes all the details you need to know about your mortgage, so you may want to request a copy for reference.
Laura Grace Tarpley is the associate editor of banking and mortgages at Personal Finance Insider, covering mortgages, refinancing, bank accounts, and bank reviews.
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