What is a key difference between a Note and a Mortgage?

A key distinction between a Note and a Mortgage lies in their functions within the loan agreement. The Note, often referred to as a promissory note, is the document that represents the borrower's personal promise to repay the loan amount. It outlines the terms of the loan, including interest rate, payment schedule, and consequences of default. Essentially, it is a binding agreement that confirms the borrower's obligation.

On the other hand, the Mortgage itself serves a different purpose; it is a security instrument that pledges real property (the home or piece of land) as collateral for the loan. This means that if the borrower fails to follow the terms laid out in the Note, the lender has the right to take possession of the property through foreclosure. Therefore, while the Note establishes the promise to repay, the Mortgage establishes the lender's right to the property should the borrower default. This fundamental difference highlights both the role of the borrower as a promise-maker and the lender's security interest in the property.