Free Promissory Note

An amortization schedule is a schedule of principal and interest payments for a Promissory Note, mortgage, or other type of debt. The term "amortization" means to repay a loan in equal installments over a period of time. Each periodic payment (usually a monthly payment) includes principal and interest -- the initial payments include higher amounts of interest and as the principal amount is gradually reduced, the monthly payments include more principal and less interest.

The "assignment" option can be included to allow the Lender to transfer (e.g., sell) their right to receive the loan payments from the Borrower. For example, the Lender may assign their right to collect the Note payments to a bank. The bank probably would not pay full value to the Lender because of the usual risk that the Borrower may not make all of the Note payments.

This program allows for the possibility of a "balloon payment." For example, the Borrower wants to borrow $10,000 at 8% for 5 years, but the monthly payments of $202.76 are too high. As an alternative, a "balloon" payment of $2,000.00 can be entered which is due at the end of the 5 years. The calculator now computes the monthly payments to be $175.54. The balloon payment "makes up" for the decreased monthly payments. In this illustration, 60 monthly payments of $202.76 equal total interest and principal paid of $12,165.60, while 60 payments of $175.54, plus 1 "balloon payment" of $2,000.00 equal total interest and principal paid of $12,532.40. The reason for the difference is that the lower monthly payments of $175.54 do not reduce the principal balance very quickly and, therefore, more interest is paid over the life of the five-year loan.

Promissory Notes usually include a "costs" provision which obligates the Borrower to pay the Lender's collection costs, if the Borrower defaults in paying the Note. For example, if Gary (the Borrower) fails to pay a $10,000 Note to Carroll (the Lender) on the Due Date, and if Carroll has to hire a lawyer to start a lawsuit to collect the Note, Gary can be required to pay the cost of the lawsuit including Carroll's attorney's fees.

If the Borrower fails to pay off the Note on or before the Due Date, it is common to assess a higher rate of interest that becomes effective as of the Due Date. This higher "default rate" provides an incentive for the Borrower to pay the Note when due, and if the Borrower fails to do so, provides some additional compensation to the Lender. The following example provides an illustration.

Rose (as the Borrower) signs a Promissory Note with Ed which includes the following terms: principal amount -- $5,000; interest rate -- 7%; and Due Date -- February 23, 1998. The Note also includes a stated default rate of 10%. This higher rate provides an incentive for Rose to pay off the Note by the Due Date. If she does not, Ed is entitled to interest at 10% on the unpaid balance, with the higher rate going into effect on February 23, 1998.

Please note that the default rate will apply to the outstanding balance at the time of the Due Date (the date the last payment is due). The late charge provisions of the document will provide a late fee which is assessed when a payment (such as a monthly installment payment) is missed prior to the Due Date.

A "discount" provision can be used as a "positive" incentive to encourage the Borrower to pay off the Note early. By discounting the Note, the Borrower benefits by having to pay back a smaller amount to the Lender than would otherwise be required by the Note. Thus, the discount is a bonus to the Borrower who is able to pay off the Note in full early. This option is not a commonly used provision, probably because the discount has the effect of reducing the amount of interest earned.

A "default" is the failure to do something required by the Promissory Note. Often a Promissory Note lists "events of default"; usually these "events of default" are events that may impair the Borrower's ability to repay the Note. Because these events threaten the Borrower's repayment ability, the Lender is allowed to demand immediate payment of the entire Note if an "event of default" occurs.

The "general provisions" for the Promissory Note include standard provisions that assist the Lender in enforcing payment of the Note by the Borrower.

A "guaranty" provision can be included so that a co-signer becomes obligated to repay the Promissory Note for the Borrower, if the Borrower defaults by not making payment of the Note. The co-signer, perhaps a third party friend or relative of the Borrower, does not become liable unless the co-signer signs the "guaranty" section of the Note.

Most states have usury laws that limit the amount of interest that can be charged. Therefore, if an interest rate will be charged that is unusually high, it is advisable to check with a lawyer or local bank to make sure that state usury laws will not be violated.

The Internal Revenue Service has special "imputed interest" rules that apply if no interest is charged or if the interest rate charged is lower than the statutory federal rate of interest. The IRS treats such loans as having a higher interest rate than the rate stated in the Promissory Note. Exceptions apply to most loans of $10,000 or less. Consult a tax advisor or lawyer if no interest or low interest will be charged. The statutory federal rate of interest changes each month. This information may be obtained from a local bank.

The "late charge" provision requires the Borrower to pay a fixed dollar amount if an installment is not paid by its Due Date. It acts as a negative incentive to encourage the Borrower to make required payments when due. This option is designed to be used if the Note will require installment payments of principal and interest or installment payments of interest only. It is not intended to be used in Notes that are "due on demand" or payable in full on a specific date.

This program permits a wide variety of payback options, including the use of a balloon payment. In addition, the program provides an amortization table based on your selection of the payment frequency. You may also select a variety of optional paragraphs.

The first section of the Promissory Note document is a "financial worksheet." This worksheet can be used to enter the basic financial information and to choose whether the Note will be paid:

A "prepayment" provision allows the Borrower to prepay the Note without penalty. "Without penalty" provides that the Lender cannot charge the Borrower a fee or try to collect additional funds from the Borrower who is trying to reduce his interest costs. This provision is beneficial to the Borrower who may wish to reduce interest charges by paying off the Note early. Compare this provision with the "discount" provision.

A Promissory Note is a written document that specifies the terms, rights, and obligations that apply to a loan. The party making the loan is the "Lender" and the party borrowing the loan funds is the "Borrower." The Note includes provisions regarding the amount of the loan, the interest rate, the date by which the loan must be repaid, and the amount of the payments. It may also include other general provisions that are important in enforcing the payment of the loan.

Payback Options
This program permits a wide variety of payback options, including the use of a balloon payment. In addition, the program provides an amortization table based on your selection of the payment frequency. You may also select a variety of optional paragraphs.

The first section of the Promissory Note document is a "financial worksheet." This worksheet can be used to enter the basic financial information and to choose whether the Note will be paid:

A Promissory Note may be secured with personal property, using a Security Agreement, or real estate, using a Deed of Trust. By securing a promissory note with personal property or real estate (both, �collateral�), the borrower of the loan promises to give up ownership or title of the property to the lender in the event that the borrower fails to pay back the loan. The Security Agreement or Deed of Trust allows the lender to use or sell the collateral to recover the money loaned to the borrower.

A Real Estate Lawyer in your state can assist you with any questions and help you draft a Security Agreement or Deed of Trust in connection with your Promissory Note.

A Security Agreement allows the lender to secure an interest in personal property in case the borrower does not pay back the loan. Personal property (also called �collateral�) includes assets such as jewelry, cars, and shares of stock. Personal property does not include real estate. The Security Agreement includes the names of the parties and the amount of the loan, and describes the personal property that the borrower will use as collateral to secure the loan.

A Deed of Trust is used for the benefit of the lender to secure an interest in real estate. As with all deeds, the Deed of Trust should be recorded in your state's tax offices. The lender may only use or sell the real estate if the borrower does not pay back the loan. A Deed of Trust provides the names of the parties, the amount of the loan, and the legal description of the land that the borrower is using as collateral under the Promissory Note.

If you have selected either of these options, please contact a Real Estate Lawyer in your state to help you draft a Security Agreement or Deed of Trust.

A security agreement is a document that is often used in a business setting under which the Borrower pledges personal property to assure payment of the Promissory Note. If the Borrower fails to make payments on the Note, the security agreement usually gives the Lender the right to have the pledged personal property sold to pay off the Note. It is very important to note that the Lender may be required to take additional steps under local law to make sure that the Lender's claim against the pledged personal property has priority in the case of default. These additional steps may be complicated and it is advisable to consult a lawyer if a security agreement will be used.

1. The Promissory Note must be signed and dated by the Borrower. The Borrower's city and state should also be included on the Note. No witnesses or notarization are required.

2. If repayment of the Promissory Note is guaranteed by a third party, the Co-Signer must also sign and date the Note.

3. If repayment of the Promissory Note will be secured by collateral pledged by the Borrower, a Security Agreement should be signed by the parties in addition to the Promissory Note. A Security Agreement is a separate, optional document not offered by this program.

4. The original copy of the Promissory Note should be given to the Lender. The Borrower and Co-Signer, if any, should retain a copy.

5. The Promissory Note should be reviewed periodically to ensure that no defaults have occurred. If the Borrower fails to make a payment on any given Due Date, the Lender should notify the Borrower promptly and inform the Borrower of relevant penalty provisions which may be imposed because of the default.