What is a Mortgage Note?
A mortgage note is a written promise to repay a certain amount of money, with interest, within a certain period of time. It shows in detail what the borrower is obligated to pay back. A mortgage note is secured by a mortgage, a document showing transfer of ownership of real estate.
The type of loan being used is shown on the mortgage note. A few common types are fixed rate mortgage (FRM), adjustable rate mortgage (ARM), balloon payment mortgage and interest-only loan. Fixed rate mortgages have a fixed interest rate and payments, and adjustable rate mortgages have a fluctuating interest rate and payment amount. When a loan has an amortization schedule longer than the maturity date, a balloon payment mortgage is being used. An interest-only loan is a loan where only interest is paid monthly, with principal due at maturation.
Mortgages can be sold from investor to investor. It is not uncommon for a person’s mortgage to be sold several times over the course of the loan. This generally does not change the loan itself, just who receives the payments. The benefit to the purchaser of the loan is that they stand to receive monthly payments for the life of the loan. A downside can be if a person defaults on the loan, in which case the investor can lose out on the investment.
In order to change the actual terms of a mortgage loan, a person must refinance the loan. A person might do this to get a better interest rate or to remove or add a person’s name to the loan. This involves going through all of the steps of a normal mortgage loan application. A new mortgage note is issued and signed, and the new note takes the place of the old one.
If someone defaults on a mortgage, he or she can be foreclosed upon by the lender. A default means that the borrower is not paying as agreed to in the mortgage note. Many lenders will work with individuals who are in default until they can get back on their feet and begin making regular payments again.
Some consumers use a produce-the-note strategy when going through foreclosure. This strategy is used to ensure that the lender can produce a mortgage note showing they have the legal right to sue. If the lender cannot produce the note, it is believed that it does not have the legal right to the mortgage.
@KoiwiGal - It can be a scary world, but you know, I think it gets more scary because people go into things like mortgages without really understanding the legalities behind them. It's not enough to make friends with the guy at the bank and hope he'll get you a good deal. You need to make sure you know whether or not they can legally sell your note onward (I'm sure you can specify in the agreement whether that is possible), whether they can change terms on you and so forth.
People get into it when they think they are getting a deal, and end up caught in a contract they can't possibly pay off.
It seems like part of the American dream is still owning your own home. Of course, this always comes with a mortgage note.
Sometimes when I hear how expensive it is to rent apartments in the city, I can see why people are anxious to get in their own place.
It is hard to imagine spending that much money every month to basically pay the mortgage note for someone else.
My daughter works for a bank that just got bought out. The mortgage note business is not a good thing if you give out too many bad loans that can't be paid back.
This is what happened to this bank, and the FDIC had to come in and take over. It has been quite an unsettling time for everyone, but things are slowly getting back to normal for everyone.
Honestly, I find it very scary that a company can sell your mortgage note on to another company without your consent. I know that generally the terms of the mortgage remain the same, but if you have a relationship with a particular person at the original company, that can be important in all your dealings with them.
I'd rather have a real person in mind when I think about huge sums of money like that, rather than shapeless company's who you know don't have your best interest at heart.
But then I guess when it comes down to it, the person you may think you have built some trust with doesn't have all that much power either.
It's a scary world sometimes.
I think we have ended up refinancing every mortgage loan note we have ever had. When the interest rates continue to go down, we figure we have a lot of money we can save by refinancing for a lower rate.
More than once our loan was sold to another company. In a situation like this, everything pretty much stayed the same, except who the payments were made to.
Once we went with an ARM note, but I was always too nervous about what the interest rate would be when the balloon payment was due. Since then I have just gone with fixed interest rate mortgage loans.
I want to know exactly how much I need to pay and not be caught off guard by any bad surprises along the way.
I have heard that many people have managed to delay foreclosure for years by using that "produce the note" strategy.
Because banks often sell mortgages on in bulk and don't always keep the records they should, it can be surprisingly easy to lose track of the original note. So many things are kept electronically now that people don't remember to keep the original papers safe somewhere in case of this kind of event.
I don't think this works in the long term, as legally, the company still has a right to the house, but it can delay proceedings for a while. And if you are about to lose your house and have no alternatives available to you, it is definitely worth a shot, particularly as often people who use this strategy after they have been foreclosed on stop paying their mortgage so they can save to find a new place.
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