Welcome to the Real Estate Exchangers Training Series by Smith Boone Advisors. We’ll be focusing on the basic concepts of two instruments that play a significant role in real estate transactions: notes and mortgages. As a real estate broker or investor practicing 1031 exchange and equity marketing, it is very important to understand the difference between a note and a mortgage. This video will explain notes and mortgages and unravel the mystery of the differences between these.

At first, when discussing real estate, the terms concepts of notes and mortgages might seem confusing but are actually pretty straightforward once you get the hang of it. So what is a note? Essentially, a note, or more accurately, a promissory note, is a written agreement where the borrower promises to pay back a certain sum of money to the lender plus interest over a specified period of time. The note includes the principal amount, interest rate, maturity date, and the borrower’s signature. It’s like an IOU that outlines the terms of repayment.

Now let’s switch gears and talk about a mortgage. A mortgage is a document that gives the lender a claim against the borrower’s property if the borrower fails to fulfill the terms of the note. The mortgage is the document that establishes the collateral interest that the lender holds onto until the borrower pays back the loan in full.

Now you might be wondering what’s the difference between a note and a mortgage. Well, the key difference lies in their roles. A note is a promise to repay the loan while a mortgage is security for that loan. Think of it like this: the note is the borrower’s commitment to pay and the mortgage is the lender’s insurance that they will get their money back. Summing it up, a note and a mortgage work hand in hand in real estate and are commonly discussed in equity marketing and 1031 exchanges. The note is the borrower’s promise to pay back the loan and the mortgage is the lender’s security that ensures they’ll get their money back if the borrower fails to fulfill their promise.

Now in real estate discussions and marketing meetings, you can have confidence that you have an introduction to the distinction between a note and a mortgage with assurance. The crux lies in comprehending their unique roles in the lending procedure. Knowledge is power, particularly in real estate exchange. Understanding the difference between a note and a mortgage can be key to structuring a successful transaction. If you need a brokerage experienced in exchange and creative real estate solutions to help you or assist as a co-broker to buy, sell, or exchange investment real estate, contact Smith Boone for a free consultation.