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Promissory Note


A legal form which states a loan that is between two separate parties is a promissory note. Within a certain time period, a borrower will be required to pay a specified amount of money to the lender. Other names for a promissory note are notes payable, commercial paper, loan agreements, IOUs, and demand notes.


All terms that relate to the promissory note are usually mentioned in the promissory note. These terms often include the maturity date, the amount of principal, the signature of the issuer, and the interest rate. Banks sometimes offer promissory notes, but more often than not this is a source for financing that is not a bank. Sources instead are often companies or individuals that will offer to carry the note as well as front the funding in terms of the note that are agreed upon.

Promissory Note in Real Estate:

In real estate, a document that a buyer has signed after receiving a mortgage loan through a lender is a promissory note. If the borrower happens to default, the lender is not excused from paying the loan and will be required to do so. The real estate promissory note is different in regards to other types of promissory notes. This type of note allows a lender to set up a lien or mortgage to acquire a loan.

The way this type of loan works is that even if a borrower’s loan has defaulted, the borrower will still be under obligation to pay the loan back in full.

Explanation of a Promissory Note:

There are several purposes for promissory notes. These can be used for bank loans, educational loans, private loans, student loans, personal loans, bank loans, vehicle or car loans, property downs payments, real estate loans, and mortgages.

The 1930s international convention governs this type of loan, which also restricts the loan as a promise of payment that is unconditional. When it comes to the legal side of enforcing a promissory note, it is similar to a loan contract or IOU. It has a promise of payment included in the contract as well as steps that should be followed in order to do this. Which is how it differs from an IOU, as an IOU simply is a written acknowledgment of the debt. A loan contract differs as it often includes a method for recourse if the borrower defaults on the loan.

A promissory note can have multiple types of outcomes regarding non-payment or fees for a payment that is late. It rarely states the methods for recourse in detail, however. An unconditional or saleable promissory note is one that is often used for transactions in business in multiple countries.

The party which owes the money typically is who will hold the promissory note. After the debt is completely paid in full, it has to then be returned to the issuer, after the payee has canceled it.

Promissory Note’s History

There is a unique history involving promissory notes. They were at one point in history, used as a replacement for currency, that was not controlled by the government. There are some places that use a demand note as a form of official currency, which is a type of promissory note.

In the US, it is more common, however, for a promissory note to be issued to a corporate customer or investors. In recent years, it has become more common to see promissory notes that involve obtaining a mortgage or selling a home.

Promissory Notes and Mortgages

When a homeowner thinks of a mortgage, they often find it to be an obligation for repayment of borrowed money, which was used in order to purchase their residence. It is not typically the case. It is a promissory note that will show their intent and promise to pay the loan in line with the terms set up for them for repayment.

The size of the debt, late fees, and the interest rate are determined by the promissory note. A promissory note is not put into the records for county land. A promissory note is a good option for those that are unable to qualify for a mortgage to be able to buy a home. This is commonly known as a take-back mortgage, which allows the seller to keep possession of the mortgage until the buyer pays off the house price and the interest rate that is agreed upon.