A note is an IOU which secured by property or a court arranged or contractual agreement.
If you have bought a major item like a house, car, or boat, chances are you did not buy it with all cash up front and had to sign paperwork to make a contractual agreement to repay the loan amount for the purchase to the lending company. You have just signed a note and that note belongs to whomever it was that lent you the money to make the purchase. As the buyer on credit, you do not own that note, but are the payor on the note.
Often those who sell their own homes without an agent will make direct agreements with those who have just bought their home, but they are holding the note until the full purchase is paid in full. If this is you, then you are the note holder who has an asset called a note. It entitles you to agreed upon payment arrangements from the payor until the debt to you is paid in full.
If you were injured in an accident or won the lottery, you may have agreed to be paid money out over a period of time until you reached a certain amount. This is a structured settlement note. In this case, you are the note holder. Someone has agreed to pay you by contract a certain amount of money over time.
A note has a payor and a beneficiary. The beneficiary is the one who owns the note. The payor is the one who makes the payments to the beneficiary.
The payor may agree to pay interest on the note to the beneficiary, and to pay part of it back in daily, weekly, monthly, yearly installments or in one lump sum (balloon payment) in the future.
In essence, the beneficiary is holding an IOU from the payor which is worth a specific sum of money. As long as you hold on to that note, you will continue to receive payments as agreed upon.
A person who holds a note can opt to continue on with the contractual agreement to receive payments as before and collect the interest along the way if this was part of the agreement. For many people, they are fine with this arrangement and it works out well for them.
