What Is a Private Mortgage Note?
A private mortgage note is a written promise to repay a real estate loan that is held by a private individual or company instead of a bank — and it is secured by a lien on the property. The note spells out the loan amount, interest rate, payment schedule, and what happens if the borrower stops paying. Most private mortgage notes are created through seller financing, when a property seller “carries” the loan for the buyer. This guide explains what a private mortgage note is, how it differs from the mortgage itself, how these notes are created, and why investors buy and sell them.
Key Takeaways
- A private mortgage note is a borrower’s written promise to repay a real estate loan held by a private lender rather than a bank, secured by the property.
- The note and the mortgage are two different documents: the note is the debt (the promise to pay), while the mortgage or deed of trust pledges the property as collateral.
- Most private mortgage notes are created through seller financing — U.S. sellers created about $29.5 billion in owner-financed notes in 2025.1
- A note holder can collect the monthly payments for income, or sell all or part of the note for a lump sum.
- Private mortgage notes are a tradeable asset — investors often buy them at a discount to earn ongoing yield backed by real estate.
What Is a Private Mortgage Note?
A private mortgage note — sometimes just called a “note” or a promissory note — is the legal document in which a borrower promises to repay a real estate loan under specific terms. It is “private” because the lender is an individual or a company rather than a bank, credit union, or traditional mortgage lender.
The note is the piece of the transaction that a note investor actually owns. When someone says they “bought a note,” they mean they purchased the right to receive the borrower’s remaining payments. The unpaid balance still owed on that promise is called the unpaid principal balance (UPB).
Private mortgage notes are a small but active corner of a very large market. U.S. one-to-four-family residential mortgage debt topped $14 trillion in 2025,2 and a portion of that is financed outside the banking system by everyday sellers and private lenders.
Note vs. Mortgage: What’s the Difference?
This is the distinction that trips up most newcomers. A real estate loan is made up of two separate documents. The note is the promise to pay — the IOU. The mortgage (or, in many states, the deed of trust) is the security instrument that pledges the property as collateral and gives the lender the right to foreclose if the borrower defaults.
In short: the note is the debt, and the mortgage is what backs the debt with real estate. A note investor owns the note, and the mortgage or deed of trust travels with it as the collateral.
How the two documents work together
The Note
The borrower’s written promise to repay — amount, interest, and schedule. This is the asset the holder owns.
The Mortgage / Deed of Trust
The security instrument that pledges the property as collateral and creates the lien and foreclosure right.
What Are the Parts of a Private Mortgage Note?
Whether it’s a one-page seller-carried note or a multi-page document, most private mortgage notes contain the same core terms. These are the details a buyer reviews when deciding what a note is worth.
The amount borrowed, and later the balance still owed.
The rate charged on the balance, which drives the note’s income.
Monthly payment amount and how the loan amortizes over time.
How long the loan runs and when the final payment is due.
What counts as default and the lender’s rights, including foreclosure.
The linked mortgage or deed of trust that ties the note to the property.
How Are Private Mortgage Notes Created?
The most common way a private mortgage note comes into existence is seller financing (also called owner financing). Instead of the buyer getting a bank loan, the seller agrees to be paid over time. The buyer signs a note promising to pay the seller directly each month, and the seller becomes the lender and note holder.
Seller financing tends to rise when bank credit is tight. Even as existing-home sales fell to roughly 30-year lows in 2025, U.S. sellers still created about $29.5 billion in owner-financed notes across 87,212 transactions that year, with Texas, Florida, California, North Carolina, and Georgia leading the way.1
How a seller-financed note is created
A property owner sells and agrees to be paid over time instead of receiving all cash at closing.
The buyer signs a note and pays the seller (now the note holder) each month, with interest.
The holder keeps collecting payments — or sells the note (in whole or in part) for a lump sum.
Private mortgage notes can also be created through private or “hard money” lending, when an investor makes a loan directly, or purchased in the secondary market from other note holders. In every case, the result is the same: a privately held loan, secured by real estate, that produces monthly payments.
Private Mortgage Note vs. Bank Mortgage
A private mortgage note and a conventional bank mortgage both let a buyer purchase real estate over time. The difference is who holds the loan and how flexible the terms can be. The table below summarizes the main contrasts.
| Factor | Private Mortgage Note | Bank Mortgage |
|---|---|---|
| Who holds the loan | A private individual or company | A bank or institutional lender |
| Underwriting | Flexible; often relationship-based | Standardized and highly regulated |
| Documentation | Can be simpler and quicker to create | Multi-page, heavily regulated |
| Typical borrowers | Many are well-qualified buyers banks pass on | Borrowers who meet standard bank criteria |
| As an investment | Can be bought and sold on the secondary market | Usually pooled and securitized by institutions |
Because private notes are individually owned, they can be sold from one investor to another — which is what makes them accessible to everyday investors rather than only large institutions.
Why Do Sellers Create Private Mortgage Notes?
Sellers use owner financing for practical reasons, not just to help buyers with weak credit. Common motivations include:
- Reaching qualified buyers banks turn away. Many buyers are financially solid but hard for banks to approve — self-employed borrowers, non-U.S. citizens, or people with thin credit files.
- Financing loan amounts banks avoid. It costs a bank roughly the same to originate a small loan as a large one, so many loans under about $100,000 are created through seller financing instead.
- Selling faster in a high-rate market. When mortgage rates are elevated, offering financing can widen the buyer pool.
- Spreading out taxes and earning interest. An installment sale can spread a taxable gain over years while the seller collects interest income.
Seller financing is also subject to consumer-protection rules. The Consumer Financial Protection Bureau has confirmed that federal Truth in Lending Act protections apply to many owner-financed residential transactions,3 so it is wise to structure these deals with qualified legal and title professionals.
Who Invests in Private Mortgage Notes — and Why?
A private mortgage note investor buys notes to collect the borrower’s payments as income. Because the loan is secured by real estate, the investor earns a return without owning or managing the property directly — no tenants, toilets, or turnover. Notes are frequently purchased at a discount to the unpaid balance, which can raise the effective yield for the buyer.
That said, notes are investments, not guarantees. A borrower can stop paying, a property can lose value, and returns depend on the specific note and how it is managed. The collateral behind a note can help reduce risk, but it does not eliminate it. To go deeper, see our guide to hypothecation and browse key terms in our mortgage note glossary.
Can You Sell a Private Mortgage Note?
Yes. A private mortgage note is a tradeable asset, so a note holder can sell it for cash. There are two common ways to sell:
- A full sale transfers the entire remaining note to a buyer for a single lump sum.
- A partial sale sells a set number of upcoming payments for a lump sum now, after which the payments revert to the original holder.
Sellers often cash out a note when they need funds now, want to stop managing collections, or want to reduce their exposure to a single loan. Cassidy Investment Group buys performing and non-performing seller-financed notes nationwide. If you hold a note and want to know what it’s worth, our note valuation guide walks through the factors that drive price, or you can request a free quote below.
Have a private mortgage note? Find out what it’s worth.
Cassidy Investment Group buys seller-financed and private mortgage notes across the U.S. Get a no-obligation quote, or sell all or part of your note for a lump sum.
Have questions first? Join Note Talks, our free monthly Q&A — the last Thursday of every month at 12:00pm EST.Frequently Asked Questions
Is a private mortgage note the same as a promissory note?
Essentially, yes. The promissory note is the core “promise to pay” document at the heart of a private mortgage note. In real estate, that promissory note is paired with a mortgage or deed of trust that secures it against the property, and together they are commonly called the note.
Are private mortgage notes only for buyers with bad credit?
No. That’s a common misconception. Many buyers who use seller financing are well-qualified but hard for banks to approve — for example, self-employed borrowers, non-U.S. citizens, or those buying homes below a bank’s minimum loan size. Credit is only one of several reasons a private note is used.
Is a private mortgage note secured by the property?
Yes. The note is secured by a mortgage or deed of trust that places a lien on the property. If the borrower defaults, that lien gives the note holder the right to pursue foreclosure. The real estate serves as collateral, which can reduce — though not eliminate — the holder’s risk.
How do I know what my private mortgage note is worth?
A note’s value depends on its unpaid balance, interest rate, payment history, remaining term, the loan-to-value ratio, and the condition and location of the property. Notes with a strong, seasoned payment history typically command higher prices. Our note valuation guide explains each factor.
Can I sell only part of my mortgage note?
Yes. In a partial sale, you sell a set number of upcoming payments for a lump sum today, then the payments return to you afterward. This lets you raise cash now while keeping a stake in the note. Learn more on our partial note purchase page.
Are private mortgage notes a safe investment?
Private mortgage notes are secured by real estate, which can lower risk compared with unsecured investments — but no investment is risk-free. Borrowers can default and property values can change. Careful due diligence on the property, the borrower, and the loan-to-value ratio can help reduce, not remove, that risk.
Sources
- Note Investor. (2026). Seller Financing 2025 Industry Report. noteinvestor.com
- U.S. Federal Reserve, Financial Accounts of the United States (Z.1), one-to-four-family residential mortgage debt outstanding, 2025. federalreserve.gov
- Consumer Financial Protection Bureau. Guidance on seller financing and the Truth in Lending Act. consumerfinance.gov
- Federal Housing Finance Agency, National Mortgage Database (NMDB) — outstanding residential mortgage statistics. fhfa.gov
Disclaimer: Cassidy Investment Group, LLC provides this content for general educational purposes only. It is not financial, investment, tax, or legal advice, and it does not constitute an offer to buy or sell any security or investment. Mortgage note investing involves risk, including possible loss of principal, and past performance does not guarantee future results. Statistics cited reflect the sources and dates noted and may change over time. Consult qualified legal, tax, and financial professionals before making decisions about buying, selling, or investing in mortgage notes.