What is a mortgage note?

A mortgage note is a document you sign when you close the deal on your home. It contains the terms of the agreement between the lender and the borrower. It is a security instrument that mortgage lenders sell in the secondary market — usually to real estate investors because they get passive income through these notes.

A mortgage note typically includes the following information:

• Total Loan Amount: The overall sum of the home loan.
• Down Payment: The initial amount paid by the borrower.
• Payment Frequency: Specifies how often payments are due.
• Loan Type: Indicates whether it’s a fixed- or adjustable-rate mortgage.
• Prepayment Penalty: Specifies whether there’s a penalty for early repayment.

The mortgage note also comes with a promissory note which outlines the terms of repayment to the lending institution. It provides loan repayment details like interest rate and payment method. Mortgage notes are relatively low-risk because investors lose money only if the borrower defaults or prepays their mortgage to avoid interest.