Promissory Note
The written promise to repay a loan, stating the amount, interest rate, payment terms, and maturity. It's the debt instrument itself, paired with a mortgage or deed of trust that secures it.
A promissory note is the written, signed promise to repay a debt. It's the document that actually creates the loan obligation — spelling out how much you borrowed, at what rate, on what schedule, and when it's due. Every real estate loan is built on a promissory note (often just called 'the note').
What the note contains
- Principal — the amount borrowed.
- Interest rate — fixed or adjustable, and how it's calculated.
- Payment terms — amount, frequency, and whether interest-only or amortizing.
- Maturity date — when the loan must be fully repaid (and any balloon).
- Default and remedies — late fees, default rate, acceleration.
- Prepayment terms, if any.
Note vs. mortgage/deed of trust
This pairing trips up many new investors. The note and the security instrument are two separate documents that work together:
| Document | What it is |
|---|---|
| Promissory note | The debt — your promise to repay (unsecured by itself) |
| Mortgage / deed of trust | The security — ties the debt to the property, enabling foreclosure |
The note is the obligation; the mortgage or deed of trust is what makes the property collateral for that obligation. You owe the note; the lender can foreclose because of the mortgage/deed of trust.
Recourse vs. non-recourse lives in the note
Whether a loan is recourse or non-recourse — i.e., whether the lender can pursue you personally beyond the collateral — is defined in the note and related documents. Most investor loans pair the note with a personal guarantee.
Notes as an asset
A promissory note is a negotiable instrument — it can be bought and sold. Lenders routinely sell notes to other investors, and an entire market exists for buying performing and non-performing mortgage notes. When a note is sold, the buyer steps into the lender's shoes and collects the payments. (Investors who hold seller-financed deals often sell the note for a lump sum.)
Why it matters to investors
- As a borrower: the note is the contract that governs your loan — read it. The rate, payment, maturity, default rate, and prepay terms that determine your true cost all live here, not in the marketing.
- As a lender or note investor: the note is the asset. Its terms, the borrower's payment history, and the security behind it determine its value.
Bottom line: the promissory note is the heart of any loan — the enforceable promise to pay that everything else (the lien, the foreclosure rights, the payments) is built around.
Frequently asked questions
What's the difference between a promissory note and a mortgage?
The promissory note is your written promise to repay — it states the amount, rate, payments, and maturity (the debt itself). The mortgage or deed of trust is a separate document that secures that debt with the property, giving the lender foreclosure rights. You owe the note; the mortgage makes the property collateral.
Can a promissory note be sold?
Yes. A promissory note is a negotiable instrument that can be bought and sold. Lenders routinely sell notes to other investors, who then step into the lender's shoes and collect the payments. There's an active market for both performing and non-performing mortgage notes.
What should I check in a promissory note as a borrower?
The principal, interest rate, payment amount and schedule, maturity date and any balloon, the default rate and late fees, and any prepayment penalty. These terms define your true cost and obligations — they live in the note, not the marketing, so read it carefully before signing.