Closing: The Promissory Note

Closing: The Promissory Note

 Many, many documents to sign at closing, one of the most significant is the Promissory Note.  The name in itself is pretty explanatory: borrower’s personal obligation to repay the loan.  The Note contains all the pertinent facts of the loan. The loan amount, the interest rate, monthly principal and interest payment, first payment due date, maturity date, borrower’s right to prepay, and late payments.

Loan Amount This amount should be the same amount of the loan that appears on the HUD Settlement Statement.

Interest Rate   An explanation of the interest rate indicating if it is fixed or adjustable.  If the interest rate is adjustable the formula for calculating the rate for each adjustment, what index the adjustment is based on, the interest points above that index, and the cap on the loan.

Monthly Principal and Interest Payment   showing the amount of principal being borrowed and the interest to be paid by the borrower.  It does not include the amount for taxes, hazard insurance or mortgage insurance.

First Payment Due Date for the Borrower  Normally at closing the borrower pays prepaid interest (listed on the HUD Settlement Statement).  Thus the borrower’s first payment is due on the first day of the second full month following closing.  If no prepaid interest was paid by the borrower the first payment will be due one month from the closing date.

Maturity Date The date the loan will be paid off. 

Borrower’s Right to Prepay  This paragraph will state whether or not the borrower will be penalized for paying the loan off early.  If the Note does not indicate there is a penalty, there could be a rider attached indicating the terms of a prepayment penalty.  In Georgia if there is no paragraph in the note, or rider attached providing for a prepayment penalty, then the borrower can prepay the loan in whole or part any time prior to the maturity date of the loan.

Late Payments This paragraph states the grace period (if there is one) and the terms of the penalties if the monthly payment is made late.  These penalties will depend on the type of loan.