Real Estate
November 20, 2018
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Why your mortgage payment keeps changing

By: Scott Sheldon
August 10, 2018

Why does your mortgage payment keep changing? Consumers are often given little explanation by their bank on why their payments are due to a different company. When you take out a mortgage here’s what you need to know…

The residential mortgage business in America has two sides; loan origination and loan servicing. Banks make money through the originating of loans i.e. loan creation as well as servicing of loans (collecting of the monthly mortgage payment). Both are extremely profitable.

 Competitive interest rates, great service and transparency are what the consumer is after. The mortgage company is interested in making a return on that loan they originate as they are paid both on the origination side and on the servicing side. Both consumer and bank have different objectives in mind when it comes time to approve a loan and lend money for a purchase or for a refinance.

Here is how this affects consumers… the classic example is a homeowner who has a mortgage. The consumer makes the mortgage payment on time; however, the servicer of that mortgage changes or has changed multiple times since they took out that mortgage. Here’s why, to generate cash, banks will sell off a servicing portfolio. Different banks have different amounts of servicing portfolios and a portfolio (assets) that’s producing income is very attractive for a bank looking to increase their bottom line. So, when your mortgage company notifies you that your loan has been sold to another mortgage company, it’s because the previous company that sold your mortgage sold your loan to generate cash, most likely to turn around and originate more mortgages.

As a consumer this is something to be aware of because having to change where you’re making your mortgage payment, even a handful of times, can be inconvenient. Consumer protection laws protect consumers by requiring the old lender to forward the payment to the new mortgage loan servicer.

When taking out a mortgage to purchase or refinance it is advisable to consider working with a mortgage company that both originates and services their loans.

By working with a mortgage company that incorporates both into the package your process is streamlined while making your payment experience after-the-fact more manageable. When you’re buying a home it’s all about closing on the mortgage; however, what often can go by the wayside is what transpires after you close on the mortgage and that should not be something discounted in a prudent decision to select a mortgage company for your financial needs.

 

Scott Sheldon is a local mortgage lender, with a decade of experience helping consumers purchase and refinance primary homes second homes and investment properties. Learn more at www.sonomacountymortgages.com.