Definition
A promissory note is the written promise to repay a debt, spelling out the loan amount, interest rate, payment schedule and the consequences if payments stop. The mortgage or deed of trust is what secures that promise against the house, while the note itself is your personal obligation to pay. In a seller-financing arrangement, the roles flip: you as the seller hold the note, and the buyer makes payments directly to you instead of to a bank. For most homeowners with a traditional mortgage, the note simply gets satisfied and marked paid when the loan payoff happens at closing. But for homeowners considering offering financing to a buyer, understanding what a note actually represents — a real, often transferable financial asset — opens up additional options down the road. Notes can even be sold to note-buying investors if you'd rather receive a lump sum than ongoing monthly payments.
Example
When Sonya sold her rental property using owner financing instead of a traditional bank sale, she and her buyer signed a promissory note for $150,000 at 7% interest, amortized over 30 years but with a balloon payment due after ten years. The note spelled out the exact monthly payment amount, what would happen if the buyer missed a payment, and the process for foreclosure if the debt was never repaid. Each month, roughly $998 arrived directly from her buyer into Sonya's bank account instead of routing through any mortgage servicer. She kept careful records of every payment in case a dispute ever arose down the line. A few years later, when Sonya wanted a lump sum instead of ongoing monthly payments, she sold the remaining balance of the note to a note-buying investor at a discount, receiving a single payment that let her move on to other investments.