One document that will be at all mortgage loan closings is the mortgage note. As common as this document is, there are many who don’t really understand what it is or how it works. For many, it is simply one more document, out of a stack of documents, that must be singed at the closing. However, an understanding of the mortgage note is crucial as all the other documents within the file support the mortgage note. Without a mortgage note, there is no loan.
The easiest way to think of the mortgage note is to think of it as a very long check. The lender has provided the borrower funds at the closing for a purchase, a refinance, or sometimes a construction loan or a Home Equity Line of Credit. The note lays out the terms the borrower has agreed to for repayment of the funds they have received. The note is the check the borrower “cashes” with the lender for the funds, but it also lays out how, when, and where the funds will be returned to the lender. It is a promise to pay.
The actual physical notes that a lender will use is typically the FNMA fixed rate multi-state note (Form 3200). This can vary based on the type of loan from the lender and whether the interest rate on the loan is a fixed rate, and adjustable rate, or whether the loan has a balloon payment due after a period of time.
The note will also present the interest rate which has been agreed upon between the borrower and the lender in advance, as well as when payments will be made (typically monthly) and where the lender wishes the payment to be made. It is important to realize however, that the address on the note may not be where the borrower makes payments. It is not unusual for a lender to have a specific address to receive payments or, in some cases, the mortgage note will be sold to another lender which will have a different address. In all cases, the lender will provide written notification of where the payment is to be made on another document within the mortgage loan file.
Mortgage notes can look confusing, but they are quite straight-forward. The other major document in the loan file is the Deed of Trust which will be discussed on a future blog post. If you have further questions regarding the mortgage note document, please contact your Googain Loan Officer for more information.