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You’ve finally landed the best mortgage loan after doing in-depth research, comparing interest rates, and agreeing to lend terms and conditions. And now are looking forward to stress-free homeownership. But suddenly, you receive a notice that your mortgage has been sold! If you’re wondering, “Why does my home loan keep getting sold?”, you needn’t worry. And, we’ll explain why.
The truth is, loan lenders can easily buy and sell mortgages to any other company, including Freddie Mac or Fannie Mae. The good thing is that you needn’t be alarmed. The notification you receive is for information purposes only.
But, why does my home loan keep getting sold by lenders?
Well, this practice of selling or transferring mortgages can be due to several reasons. The most relevant one is that it allows money lenders to make more home loans. Let’s understand this strategy in detail.
Often lenders make a business decision not to service loans as they may no longer be able to manage or have the requisite corporate resources or skills.
Lenders may also sell off home loans to make money off the sale of the loan so that they can optimize their business model. Other times, they may want to reduce their liabilities so that they can serve new customers i.e. other prospective homeowners.
Another very common reason why this happens is that the initial loan lender doesn’t want to wait for 15 or 30 years for you to pay back the amount. They may no longer want to keep your debt on their books and hence may pass on the home loan to another company.
Keep in mind that your real estate debt is part of a larger scheme of things in the eyes of the lender. They may use it as a financial instrument that can be bought and sold between investors – multiple times!
And you, the borrower, may not even realize it.
The lender strategy at the end of the day is to ensure that money continues to flow through the housing market. And that loans continue to be available for qualified borrowers.
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What happens when my mortgage is sold?
When your mortgage changes hands, the new company buys the servicing rights and obligations such as collecting and processing the payments, making disbursements from an escrow account or taxing authorities and property insurance company.
Before your mortgage is sold, you’ll receive a notice about the change 15 days in advance. Within 30 days, the new owner of the mortgage must send you the company’s name, address, and contact details. This process is in accordance with federal law and cannot be skipped.
What should I do when my mortgage is sold?
Think of the notice you receive as a heads-up notifying you about the new mortgage servicer. You don’t have to take any action. Your loan term, interest rate, monthly payment amount, and the remaining balance will not change.
That is to say, there will be no change at all in the way you make your monthly mortgage payments.
The only thing you’ll have to look out for is if your payment information has been updated. You may need to send a check to a new address or reroute your ACH withdrawal.
It’s always a good idea to update the information for future payments as quickly as possible. However, you won’t be penalized in case you send a payment to the previous mortgage owner. You’ll get a 60-day grace period after the servicing rights have been sold.
Do keep a copy of all your statements in order to prove that you submitted payments on time, and to the right entity.
Can I avoid having my mortgage sold?
Keep in mind that your mortgage lender has every right to sell your loan. It would even be mentioned as a clause in your mortgage contract – permitting a transfer to a new owner. If you’ve agreed to such a clause, there’s nothing much you can do about it.
Moreover, if you get a loan servicer that you don’t like, the only recourse is to try to pay off the loan as quickly as possible – even if that means refinancing your mortgage. However, refinancing can be expensive with thousands of dollars worth of closing costs.
If you’re really worried about your mortgage changing hands, always look for a portfolio lender before applying for a loan. A portfolio lender is a financial institution that maintains its loans itself rather than selling them to someone else.
After you buy a home and choose the best mortgage, there’s a chance that you may get notified that your loan is sold to some other company. Don’t worry; it’s not an uncommon phenomenon. A home loan can be sold by your lender for a variety of reasons. However, this change of ownership won’t affect you unless your loan lender is also selling specific servicing rights.
If that’s not the case, you’ll deal with the new organization the same way you dealt with your old lender.