If you want to obtain a mortgage, a commercial loan, or a home equity loan, one of the best ways is to secure a promissory note. A Secured Promissory Note ensures that the borrower is going to pay back the money by the due date and helps persuade a lending institution to lend you money. The secured promissory note is a legal document drawn up by a licensed financial agent. This form is used for people who have property such as real estate that they want to secure. Use the secured promissory note document if:
To get started you will need to have a secured promissory note. This is a legal document that explains in simple terms how the money will be repaid to the lender. For example, it could say: My client is requesting the approval of a loan which will be used to purchase a new home. In exchange for providing security for the loan the lender is going to require the borrower to repay a certain amount of money every month until the house is sold. Once the house is sold, the money repaid should cover the outstanding balance on the loan plus interest.
Many lenders use a secured promissory note to force the borrower to pay for the house they are purchasing. This method is often used when a borrower owes a large amount of money to a lender. It also works well for people who have a large amount of collateral. Some lenders offer unsecured versions of these notes. An unsecured counterpart to a secured promissory note is the non-recourse promissory note.
These notes are simply loans that do not require collateral to back up the promise of repayment. The lender does not own the property in question, so there is no securing the property with something tangible. However, this does leave the borrowers in a difficult position. If the borrower defaults, the lender has not gained any equity in the property, and the sale proceeds from the loan may not be enough to satisfy the debt. In addition, the borrower must pay the remainder of the loan (commonly, the down payment) to the lender, and he is responsible for paying the remaining balance due on the note, plus interest and fees.
A secured promissory note is a good way for lenders to protect themselves if their loan borrowers default. The lender may simply repossess the property if the borrower does not make his payments. Alternatively, the lender can use the property as collateral to get a lien registered against the property. If the property is stolen, the lender can regain possession by making a court order.
If the value of the property is less than the amount of the loan, lenders will usually allow only a small percentage of the note to be outstanding at any one time. This is because they have to recoup the rest of the investment, plus interest and fees, from the borrower. On the other hand, unsecured notes are valued more frequently, and it is common for them to be 100% outstanding at any point in time. Therefore, when both types of notes are involved, the secured promissory note offers a higher interest rate relative to the unsecured counterpart, but both notes are useful tools that should be used appropriately.