Guide to the Differences between a Home Mortgage and Promissory Note


If you have bought a house before, you no doubt have heard about mortgage. Mortgage refers to a loan that is taken out with the bank to purchase a house. Usually, you need to put a collateral to borrow a home mortgage. If you take out a mortgage, you will have to sign an agreement where you agree to pay back a certain amount every month until the end of the term to the bank.

Promissory note, on the other hand, is an agreement prepare by the borrower to the lender, which states he promises to pay back the sum that is borrowed. The note contains information about the interest of the sum borrowed, the repayment mode and the length of time you will take to repay the loan. There may be other clauses, for example, interest that is owed on a late payment.

A Note is a Private Contract with the Individual Lender

Promissory note is more personal because the payment is made to an individual lender whereas a mortgage is commercial as you are making the payment to a financial institution. As soon as you pay back, the lender will prepare a document that state you are free from the liability of the note.

Promissory Note Has No Collateral

Unlike a mortgage, note usually does not require the borrower to put in any collateral as security. However, the individual lender has the right to sue under the note in case the borrower fails to keep his promise to pay back. A copy of the note is handed to the lender and there is no need to go to any office to record it. If you take out a mortgage, the law requires it to be record in the recording office of the town or county.

Promissory Note has Simpler Content Compared to a Mortgage Agreement

The note only records the details of the loan repayment whereas the mortgage will specify the procedures that will follow in the event that the borrower default on the loan. The mortgage agreement also state how you will be pursued if you don’t pay back on time, for example, the bank can repossess your collateral, or your account may be handed over to the debt collection agency.

It is Easier to Borrow a Home Loan with a Note

There are a few requirements to meet to get approved for a mortgage, for example, you need to have good credit score and have a stable income. If you are not eligible to get a mortgage, you may consider borrowing money from a friend. It is also commonly used when family member is selling a property to another family member. The promissory note will give an assurance to your friend. He will feel appreciated which can prevent damage on the relationship due to money.

Using a Promissory Note Template

A promissory note is easy to write; but just in case, you don’t know how to write one, you can use the free promissory note form in the PDF editor software. In Movavi PDF Editor, you will find a free promissory note form where you can type in information about your loan in the blank fields and use it as a valid note for your loan. It supports signing the form with a tablet pen or a digital signature image.