What is a promissory note?

A promissory note is fundamentally a financial instrument that represents a written promise to pay a certain amount of money to a specified individual or entity at a designated time or on demand. It is a crucial document in real estate transactions as it outlines the borrower's commitment to repay a loan under defined terms, including interest rates and repayment schedules. The detailed nature of the promissory note ensures that both parties are clear on the obligations involved in the borrowing arrangement.

In real estate, the promissory note is often associated with a mortgage, as it serves as evidence of the debt incurred by the borrower for purchasing property. By providing a clear expectation for repayment, it protects the lender's interests while also formalizing the borrower's responsibility to fulfill their financial obligations. This framework helps facilitate trust and legality in financial transactions within the real estate industry.