Purchasing a home can make anyone feel like a fish out of water. Pre-approvals, inspections, and a series of checks and balances are overwhelming enough. Once you add paperwork to the mix, every document starts to look the same. Among these blurred lines are promissory notes and mortgages. While similar in concept, a promissory note and a mortgage depart in purpose. A promissory note is a legally binding contract between a borrower and a lender with a promise to repay.

Specifically, in the context of purchasing a home, the promissory note is the borrower’s promise to repay her loan. On the other hand, the mortgage relies on the title of the home as collateral for the loan. It is not uncommon for the borrower to receive both a mortgage and a promissory note during the purchase of real estate. Both documents work collaboratively to ensure the loan is repaid.

Promissory Note

When an individual takes out a mortgage on a home and executes a promissory note, that note is the borrower’s commitment to making the monthly payments on the loan. The note will stipulate details such as the principal amount of the loan, the interest rate, the amount the borrower is required to pay on a monthly or bi-monthly period, the term (the length of time until the mortgage is repaid) of the loan, and the consequences that ensue in instances of late payments or a complete failure to pay –usually foreclosure.

Once the loan has been completely paid, the lender changes the status of the promissory note to “paid in full” and the promissory note is no longer valid for performance. However, where the borrower continuously defaults on payments, the lender will seek repayment by foreclosing the home.


While a promissory note contains the borrower’s promise to repay the loan, the mortgage contains the lender’s power to foreclose. When the borrower executes a mortgage, she agrees to give up the title of the home as security for repayment. Therefore, in instances of default, the lender can ensure he is repaid.

Like promissory notes, mortgage instruments also allocate responsibilities to the borrower. Specifically, the borrower has a duty to maintain the property, pay property taxes, and acquire home and fire insurance (where applicable). Should the lender have to seek repayment in the form of foreclosure there are no additional costs and burden on the lender where the borrower has followed through on her responsibilities.