What Is a Mortgage Note
A mortgage note, sometimes called a promissory note or real estate note, is a written promise from a borrower to repay a loan used to purchase real estate. The note outlines the loan amount, interest rate, payment schedule, and repayment terms.
How Mortgage Notes Work
When a property is sold with financing, the buyer agrees to make monthly payments based on the terms listed in the mortgage note. These payments usually include principal and interest and are paid to the note holder.
Who Holds Mortgage Notes
Mortgage notes may be held by banks, private lenders, investors, or property sellers who offer seller financing. If you sold property and accepted monthly payments, you may already be holding a mortgage note.
Why Mortgage Notes Have Value
Mortgage notes create a predictable income stream. Instead of receiving a lump sum at closing, the note holder receives payments over time. These notes can also often be sold to investors for a lump sum of cash.
Reasons Someone Might Sell a Mortgage Note
Many note holders eventually decide they would rather receive cash now than wait years for future payments. Common reasons include needing capital for another investment, paying off debt, or simplifying finances.
What Affects the Value of a Mortgage Note
Several factors influence the value of a note including the remaining balance, interest rate, payment history, borrower reliability, and property equity.