What happens to your mortgage after the closing?
When most people buy their first home, all of their emotional and mental energy is fixated on the closing. Most people don’t know what can happen afterward, and sometimes are shocked by it.
There are two things that might happen after your closing:
1. The loan is sold to a different company. In the United States right now, it is extremely difficult to find someone to originate (process and fund it up to the closing) who will also service the loan. To service the loan means that they collect your payments, deal with your escrow account, pay your taxes and insurance from the escrow account and handle any problems that might come up including providing customer service to you.
Generally even small banks and savings and loans sell most of their loans to a second party servicer. If you want your loan to stay local instead of going to a national servicer who is only available by phone or email, make sure that you ask lots of questions from your loan officer. If they are going to sell your loan, they by law must include in your closing documents papers saying exactly where the loan will be sold to, and advising you of your rights while the transfer is taking place. (For instance, for a certain period of time if you send your payment to the wrong company they can’t penalize you for it.)
Unfortunately if you’re not happy with the company your loan is sold to, there’s not much you can do about it except to refinance with another company. But again, that company will probably sell your loan to someone else. You might have an interest rate increase and you will have to pay the closing costs again, so refinancing to get away from a bad mortgage company is probably not a good idea.
2. Your taxes and insurance might go up:
A lot of people make the mistake of thinking that since they’re not renting anymore, they don’t have to worry about their housing payment ever increasing again. However, insurance companies can and do increase their rates all the time. If you have had major storms in your area recently chances are the insurance company will raise the rates in the area to compensate for their losses.
Also, if you live in an area where there is a lot of construction, new housing, and new people moving in, chances are that eventually the property taxes will go up to match the increase in property values.
That’s the bad news. The good news is that eventually if your property value goes up and you keep paying on your loan, you will get at least 20% equity in your home, meaning your loan is for less than 80% of the current value of your home. That means that if you are paying PMI (private mortgage insurance), you can do a refinance to have the PMI taken off, lowering your monthly payment considerably.