When you close on your mortgage, does it just sit in a file for years, waiting to be paid off? Not quite! Believe it or not, while your loan could stay right where it is, it can also go on a journey, getting bought and sold, becoming part of the secondary market, and switching hands between different companies. Let’s explore what can happen to your loan after closing and how (or if) it impacts you.
This is perfectly normal and nothing to be alarmed about. When you close on your loan, your lender has four options:
Keep the mortgage as part of their portfolio and service it themselves.
Keep the mortgage but sell the servicing rights.
Keep the servicing rights but sell the mortgage.
Sell both the mortgage and the servicing rights.
In many cases, your loan will be sold to a third-party investor, such as a government-sponsored entity (GSE) like Fannie Mae or Freddie Mac, or private investors. When this happens, your loan gets bundled into a pool of other loans that are sold together as mortgage-backed securities (MBS) on the secondary market.
Your lender — the institution you got your mortgage from — may sell your loan, and many others, so it has cash to fund more loans.
The secondary market is where investors can buy bundles of mortgages, which may include yours.
Fun fact! You may own parts of other people’s home loans if MBSs are part of your investment portfolio.
Sometimes your mortgage lender also services your loan. More often, though, your lender will transfer servicing rights to another company. Your loan servicing can change hands any time, and even many times, over the life of your loan. Your lender must notify you of the transfer and provide you with the new servicer’s contact information, since you’ll need to start sending your payments to the new company.
It’s more important to know who services your loan than who owns it. You probably won’t have further interaction with your loan’s owner, but you’ll be making monthly payments to your servicer.
The new servicer cannot change the terms of your loan. You will still owe the same amount, for the same interest rate, for the same time period.
The only thing that changes is where you send your payments! Pro tip: Don’t forget to update your autopay if you get a new servicer.
As mentioned, your servicer cannot change the amount of your monthly payments. But your payment can change. This will happen if your taxes or insurance fluctuate. It will also occur with an adjustable-rate mortgage (ARM) if you don’t refinance when the initial fixed period ends. If your payment needs to increase, you will receive a letter from your servicer letting you know the new amount.
It’s also possible to overpay into your escrow account. Your servicer is required to audit your account at least once a year. If it finds you’ve overpaid, you will get a refund check. Refinancers often get refunds because the new loan usually includes money to pay off your old escrow account.
Pay attention to interest rates.
Interest rates rise and fall all the time. If they go down enough, you might be able to lower your monthly payment by refinancing. Stay in touch with your Loan Officer for an accurate picture of market rates and to discuss possible savings opportunities.
Keep an eye on that equity, especially if you’re paying private mortgage insurance (PMI).
Suppose you put less than 20% down on your home but have since built up at least 20% in equity. In that case, you can inquire about eliminating PMI, a fee that helps protect your lender if you default on your loan.
Prepare for a deluge of mail.
Once you are officially recorded as the property owner, your loan becomes part of the public record. As a result, your mailbox will start filling up with offers to refinance your loan, extend you credit, or sell you additional services, such as home security systems, home warranties, and even life insurance.
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