Why your mortgage payment keeps changing


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Why would a mortgage payment ever change? Consumers are often given little explanation by their bank on why their payments are suddenly due to a different company. If this has ever happened to you, here’s how it works.

The residential mortgage business in America has two sides: Loan origination and loan servicing. Both are extremely profitable for banks and other loaning institutions.

Competitive interest rates, great service and transparency are what the consumer is after. The mortgage company is interested in making a return on the loan it originates, as it is paid on both the origination side and the servicing side. Both the consumer and the bank have different objectives in mind when it comes time to approving a loan and lending money.

A classic example

Let’s use a classic example of this phenomenon in action and suppose, per usual, that a homeowner has a mortgage. That homeowner makes the mortgage payment on time, but the provider of that mortgage changes or has changed multiple times since the homeowner took it out. 

Here’s why banks do this: To generate cash, they 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 that is looking to increase its 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 did so to generate cash.

This exchange is something that the consumer should be aware of, because having to change the institution to which you’re making your mortgage payment can be inconvenient. Consumer protection laws safeguard homeowners by requiring previous lenders to forward any payment to the new mortgage loan servicer.

The mortgage company matters

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

By working with a mortgage company that incorporates both of these activities, 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 fall by the wayside is what transpires after you close on the mortgage. No aspiring or current homeowner should discount this phenomenon when making a move on a mortgage.

This article originally appeared on SonomaCountyMortgages.com and was syndicated by MediaFeed.org.

Featured Image Credit: DepositPhotos.com.