Table of Contents
- What Are Netting Escrows & How Does It Work?: The Best Guide - January 2, 2024
- The Secret About Prescriptive Easement: Top Guide 1 Must Know - December 4, 2023
- About Home Equity Loans In Texas And How Can One Obtain It - November 27, 2023
About Promissory Note
Whether it is a mortgage, personal loan, car loan, or a student loan, the intention of the borrower is always to repay the amount borrowed to the lender and the lender expects the same.
However, the lender will require some documents as an assurance that the borrower is going to repay the borrowed amount. That is when they use promissory notes. In this post, we will learn what is a promissory note in detail.
Promissory Note Definition
It is a document that is signed between borrower and lender that says the borrower promises to pay the lender the borrowed amount as per the terms mentioned in the note.
It acts as a security for the lender as a promise to pay by the borrower, if the borrower is unable to pay the lender according to the terms in the note the lender can either seize the collateral or take legal action to recover the debt from the borrower.
Though the promissory notes are customizable depending upon the transaction type, there are a few things that are common in each note like the loan terms, repayment schedule, date of issuance, calculation of interest amount, calculation of fees, and collateral, obligations of the borrowers, etc.
There are two types of notes, secured notes, and unsecured notes. On a secured note, the borrower borrows the money from the lender keeping collateral.
If the borrower is unable to pay the borrowed amount, the collateral is then handed over to the lender to recover the borrowed amount.
In an unsecured note, the lender is lending the money to the borrower without any asset or collateral.
If the borrower is unable to pay the lender according to the terms in the note, the lender would have to file in court or follow other legal processes
What Is Included In A Mortgage Promissory Note?
The first thing that is included in this note is the date when the debt was issued with the name of the lender.
The next thing would be the amount of money that was borrowed by the borrower followed by the interest rate that the lender is going to charge you for the amount that you have borrowed.
The next thing mentioned would be your obligation of payment like the first and the last payment due date along with the monthly payment including the interest rate and the principal amount.
Please note that if you have set up an escrow account to pay your taxes and insurance with your mortgage payment, the note will not include the same.
The next thing on the promissory note would be your right to prepay. If there is a prepayment penalty on your mortgage the note will show the terms of the prepayment penalty.
The next thing on the note you will see the details if the borrower defaults like a grace period, late fees, default time, and default waiver.
The final information on the note is the transfer provision which states that the lender has provided the loan to you based on your qualification.
If you transfer this property to any other person, the new buyer cannot assume this loan and would be unable to make payment on this loan.
They might have to get their financing or qualify with the same lender to assume the mortgage.
Conclusion
As a borrower, a promissory note will help you understand the terms of the loan so that you know when you are supposed to make the payment and what is the amount of payment that you have to make to the lender.
As a lender, this note will act as a security and a promise that the borrower will make the payment on time and would not default any payments.
