What it means when your mortgage gets sold, and what you can do about it
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Before you applied for a mortgage, you watched interest rates, compared multiple lending options and scrutinized the terms to make sure you landed the best deal. After all that research and choosing a lender, though, you might be asking what feels like an odd question: Why did my mortgage get sold?
While it may feel surprising, there is no need to stress: Mortgages are bought and sold all the time.
What happens when your mortgage is sold
When your mortgage is sold, a new company is typically buying the servicing rights. Those rights include collecting and processing the payments, along with all the additional regular duties that come with mortgages. Those duties may include making disbursements from an escrow account to taxing authorities and property insurers. There are some entities that specialize in taking care of those servicing obligations.
Prior to your mortgage being sold, you’ll receive a heads-up about the new servicer. Federal law dictates that you must receive a notice about the change at least 15 days prior to the switch. Then, within 30 days, the new owner of the mortgage is required to send you its name, address and contact number.
Why lenders sell or transfer mortgages
Many lenders specialize in originating the loan, but often, the initial lender can’t afford to wait for 15 or 30 years for you to pay it all back. By selling it, they no longer have to keep your debt on their books, and they can offer loans to other prospective homeowners.
While you are focused on your individual mortgage, your debt is part of a much larger web of other debts. It is a financial instrument, much like a bond that can be bought and sold between investors. In fact, that debt may be sold multiple times, and you may not even realize it. Behind the scenes, your loan could be packaged with other loans and sold as part of a mortgage-backed security.
This all starts to feel complex for individual homeowners, but the goal is simple: to ensure that funds continue to flow through the housing market and loans are available to qualified borrowers.
What to do when your mortgage is sold
If you receive a notice that your mortgage has been sold, the first step is simple: Don’t obsess over it. The terms of the loan — your interest rate, monthly payment and remaining balance — will not change.
The main responsibility you should put at the top of your list is managing your data. Watch out for those notifications related to updating your payment information. You may need to redirect your ACH withdrawal to a different entity or mail a check to a new address. And if you recently sent a payment to the previous owner of the mortgage, you will not be punished. There is a 60-day grace period after servicing rights have been sold.
In addition to updating your information for future payments, it’s smart to keep a copy of statements from the months surrounding the sale and transfer to a new owner. By holding on to documentation, you can prove that you submitted payments on time in the event of any confusion.
How to avoid having your mortgage sold
If you’re really concerned about your mortgage changing hands, you should think about it before you ever apply for a mortgage and seek out a portfolio lender. A portfolio lender is an institution that keeps loans within their own portfolio instead of selling them.
If you already have a mortgage, there is likely a clause in the contract that permits its transfer to a new owner. If that’s the case, there isn’t much you can do to stand in the way of a sale other than refinance your mortgage.
While rates are low right now, keep in mind that refinancing comes with thousands of dollars worth of closing costs. Compare refinance rates, and use Bankrate’s refinance calculator to determine whether it’s worth the extra costs.