At closing, borrowers will sign lots of documents, but two are very important documents: Promissory Note and a Mortgage. Although both are extremely necessary documents and very different documents, they often get interchanged. Here are differences between the two.
What is a Promissory Note?
A promissory note is a written promise to repay a loan or debt in a specific amount, with agreed upon interest and repayment terms. It is essentially an IOU that outlines the terms of the loan, including the repayment schedule, interest rate, and any penalties for late payments or default. It is signed by the borrower and usually includes the lender’s name, the borrower’s names, the amount of the loan, the interest rate, and the repayment terms. Since this document has non-public information, this is a private document between borrowers and the lender or any assigns of the promissory note.
What is a Mortgage?
A mortgage, on the other hand, is a legal document that secures the loan to the property itself. It is a written agreement between the borrower and the lender that gives the lender a security interest in the property until the loan is fully repaid. In other words, the mortgage provides the lender with the right to foreclose on the property and sell it to recoup their losses in the event the borrower defaults on the loan. This document is filed with the county recorder’s office and becomes public record.
Who Signs a Promissory Note or a Mortgage?
This is probably one of the biggest questions we get as Closers. Who is supposed to sign these documents?
- Promissory Notes:
- Anyone who is financially responsible for the payment of the debt.
- Does NOT require all titleholders to sign.
- Mortgages:
- Titleholders
- Spouses of Titleholders
- Any member of an LLC that is required to sign
- Does NOT require all borrowers to sign.
- For More information, click HERE to read more signing rights.
Both of these documents are very important to the closing process and your new loan. No matter what you are signing please, read and review accordingly. It could cause you your home!