After you close your mortgage loan, take a deep breath, release it and move into your new home. The hard part is over, but keep in mind that in some cases, you may receive updates or changes regarding your mortgage account in the mail from your mortgage lender. One such case is if the bank does a mortgage transfer.
Transfer Servicing or Ownership
In most cases, the term "mortgage transfer" relates to the transfer of mortgage servicing and/or ownership to another company. One bank or mortgage company may be selling mortgages to another, and yours may be one of the mortgages being sold. If Mortgage Company A decides to sell the loan to Mortgage Company B, that transfers the mortgage obligation over to the new bank. If only the servicer of the mortgage changes, the bank that holds your loan may stay the same; you just have to route payments to a new company. In either case, from now on you'll have to make payments to the newly established servicer each month. Your consent is not required when a mortgage holder sells your mortgage, but you shouldn't experience any problems, either.
Why Is a Mortgage Sold?
Lenders sell mortgages for two reasons. They sell them to gain capital. It might be that the lender wants to lend money to other people or businesses, and decides to sell your mortgage to free up some cash to lend to other clients. Lenders may also sell your mortgage to make money. They do this by charging fees at the start of the loan, and selling your loan for a commission.
Notification of Mortgage Transfer
You need to receive proper notification of this transfer from both your old servicer or bank and the new company. The Federal Trade Commission states that the current servicing company must notify within 30 days of the effective date of the transfer. If the loan is completely changing owners, the new bank must send you notification of the transfer within 30 days after taking possession of the mortgage account. Also, you have a 60-day grace period from having to pay late fees if in the midst of the confusion you accidentally send your payment to the old provider.
How It Affects You
Usually, a mortgage transfer does not have much of an effect on you. You have the same terms as your original mortgage agreement, including the same interest rate, balance and term. The only change is the name of the company on the top of your bill each month. If you make payments online, you'll have to cancel any scheduled payments and establish payment arrangements with the new mortgagee. The only change may be in your escrow. If your new lender determines your escrow for your property taxes and homeowner's insurance, and mortgage insurance if you have that, is not enough, then your monthly escrow funds may go up. Your new servicer may require you to hold your escrow with them if you did so with your previous lender.
Another Potential Definition
Another, but less common, definition for a mortgage transfer is when the borrower wants to transfer the obligation of the mortgage to another person. This may occur when the current borrower wants to leave the home but doesn't want to go through the selling process, or when a spouse with better credit wants to take over the obligation. This is called a mortgage assumption. Again, this is not very common, and the decision of whether to transfer a mortgage obligation into the name of another qualified borrower lies in the hands of the bank. The lender may require the new party to refinance the loan.
Mortgage Transfer and Taxes
Just remember, you may get two mortgage 1099s if your mortgage loan is sold to another lender. So keep those for your tax records at tax filing time.