Loan World

What is a Mortgage Promissory Note?

A promissory note, quite simply, is a promise to pay back a loan. In terms of buying a house or other property, a promissory note is the key document that dictates the loan payment process. It specifies the amount being borrowed, the term of the loan, the interest rate, the monthly payment, and what happens if payments are not made on time.

The actual mortgage contains this information. However, it also describes the property, and makes an additional provision. In the case that you do not pay the loan as specified in the promissory note, the lender has the power to foreclose (sell the property). The mortgage document serves as a legal lien that is filed in city or county records.

The mortgage and the promissory note are inherently interlocked, and give meaning to the other. The promissory note, then, is an extremely important document that you should understand thoroughly.


The first step is understanding the language in which the promissory note is written:

  • Promisor - the person who is promising to repay the loan. Also referred to as "obligor."
  • Promisee - the person who is entitled to receive payment for the loan (lender, bank, credit union, etc.). Also referred to as "obligee."
  • Consideration - This is a legal term for the value received in return for entering into a contract.  Here, the promisor usually obtains consideration in the form of a loan, and the promisee receives consideration in the form of the promise to repay the loan under the terms specified.


A typical promissory note includes some key sections:

  • Promise to Pay: This is your written agreement that you will pay a certain agreed-upon amount. You will pay the amount at the agreed-upon interest rate.
  • Repayment: You agree that you will pay the amount of the property in agreed-upon installments, usually in monthly payments due on a specific day, and within a 15, 20 or 30 year term.
  • Modification/Amendments: Any changes to the promissory note and mortgage over the term will be added in this section, and signed by all parties.
  • Breach of Note: Here you agree that a breach of any condition shall not be waived without written notice.
  • Governing Law: Notes which governing body will have legal jurisdiction over the promissory note and mortgage, and who will enforce the terms.
  • Witness and Signature: All parties sign to the agreement.

So what do you need to look for when reviewing your promissory note? Verify that your name and address are correct. Confirm that the interest rate is what you were promised by your lender. Also, confirm the amount of your monthly payment. When you've checked that this information is what it should be, answer some key questions:

  • When is your first payment due? Interest may accrue beginning the day you sign your promissory note, even if monthly payments aren't due for some time. Ensure you understand the details. 
  • Do you have the right to prepay your loan with out a penalty?
  • Is there a grace period before you are in default?
  • Is the loan assumable? Can someone buy your property and take over your loan?

Remember that before you sign your promissory note and mortgage, there is no substitute for the keen eye and thorough understanding a real estate lawyer can provide. Do your research, but also know when to call for back-up.