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What happens after you get your mortgage?

Whether you already closed on your mortgage or you're still in the process of applying for one, you should know what happens with your mortgage after you sign all the papers.

We're going to show you how to:

  • Always be on top of your mortgage

  • Know ahead of time before problems arise

  • Avoid costly mistakes

  • Save as much money as possible

We talk a little about mortgage servicing, also about cutting your costs with pre-payment and PMI, and finally, we look at possible problems with your mortgage.

Let's start with mortgage servicing so that you know exactly who you'll be dealing with when you make mortgage payments, have questions, or if you run into trouble of any kind:

Servicing the mortgage

Often a mortgage is not actually owned by the company or broker that closes the loan. Your broker or mortgage company may simply be working on behalf of a bank or other lending institution that actually funds the mortgage.

Even the lender that owns your mortgage may not own it for long.

Conforming mortgages are usually sold to other banks or investors (called the "secondary market").

The lenders that we recommend often fund their mortgages themselves, but they also work on behalf of many other lenders. This is because different lenders specialize in different types of mortgages, some in hybrid ARMs, some in 15-year FRM's, and still others in special cash-saving or credit-building loans. Not every lender can give a great price on every type of mortgage, but by "combining forces" they can get a lot closer.

Many people are skeptical of these practices. However, in general, they are a good thing for you, the home buyer, because they increase your chances of getting a good deal on the particular mortgage you want.

This is all fine, but what does it mean to you once you've closed the deal on your mortgage? Well, as your mortgage shuffles from owner to owner, so may the right to "service" it.

So, who does the "mortgage servicing?"
The loan servicer is the party you deal with directly when it comes to your mortgage. They act as a kind of go-between for you and the mortgage lender.

Here's what to expect from them:

Every month you send payment to the bank, lender, or processing company that services your mortgage account. Your lender specifies who the account servicer is when you are closing (or before).The mortgage servicer is in charge of the escrow account that contains the funds for insurance and taxes and is responsible for making these payments on time. If the mortgage is actually held by another company, the servicer forwards the remaining loan payment to them.

The mortgage servicer also sends you an annual statement of how much of the year's payments went toward balance, interest, insurance and taxes. This is when you find out the next year's interest rate and monthly payment amount if you have an adjustable rate mortgage or any minor payment adjustments if you have a fixed rate mortgage. If you run into any problems with your loan (or have questions about some aspect) the mortgage servicer is who you should contact.

Just as mortgages are often sold during their lives, so are their servicing rights. If this happens, you'll be informed of it in writing by both the old and new servicing companies. You will have a 60-day grace period for late payments in case you accidentally send a payment to the old company. Make sure you keep copies of all correspondence regarding a change in servicer and check the new statements for any errors.

Whenever your mortgage or its servicing rights are sold, the new company is legally bound to the terms you agreed to with the original lender. Nothing about your loan should change except the place you send your checks.

Next: Cut your mortgage cost with pre-payment

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