After searching for the best mortgage lender, you might be surprised to get a letter soon after you close on your new home loan that states that your mortgage has been sold to a different company. You might wonder how that happened and if it is even allowed to happen. Here’s what you need to know:
How a Mortgage Is Made
When you think of a typical bank loan, you think of applying with the lender, getting your application approved, receiving funds, and then paying the bank back over time. While some mortgage lenders originate and keep the loans until they are paid off, most are actually only interested in making the loans, not holding on to them. They cannot usually afford to wait the 15 or 30 years it takes for individual homeowners to pay back their loans. Instead, they originate a home, earn money through the closing costs and discount points, then sell the loans in order to get enough capital back to make more loans to other borrowers.
Who Buys Mortgage Loans?
Mortgages have been being bought and sold by companies and investors for decades. A mortgage lender sells a home loan to an investment company, who buys up lots of mortgages, packages them together and splits them into individual shares that can be bought and sold as mortgage-backed securities on the stock market. Your mortgage payments will be collected and divided up to go to those investors. Lots of investors like the security of owning investments that are tied to physical property and considered relatively safe. The whole process is helpful for making plenty of money available for new home loans and for making mortgage loans less risky for lenders to originate.
Does My Mortgage Change When It Gets Sold?
When your mortgage gets sold, it stays exactly the same in terms of the interest rate, remaining balance, and the loan term. Nothing should change for you other than where you send your mortgage payment.
What Happens When My Loan is Sold?
The company that buys your loan is also buying the rights to service your loan meaning they will collect your monthly payment, handle any questions you have about your mortgage, and handle disbursements from your escrow account for taxes and insurance.
Before your loan is sold, it is required by law that you be notified at least 15 days before the transaction is complete. At that point the new owner of your mortgage has 30 days to provide you with its name, address, and contact number. You will then need to start sending payments to the new service, whether by check or through electronic funds transfers.
It is a good idea to hold on to any statements around the time of the mortgage sale that document your payments and where they were sent. This can prove you are current on your loan in case there is any confusion in the switchover period. You should also retain documentation of the transfer, such as the notice and any correspondence, for your records.
If you have any concerns or questions about the sale of your mortgage, it's recommended to reach out to your lender or the new loan servicer for clarification and assistance.
Give us a call today if you are interested in buying or refinancing your home!