The bank or other mortgage lender that provides a borrower with the funds to purchase a home often later transfers or assigns its interest in the mortgage to another firm. When this happens, the borrower will start sending monthly mortgage payments to the new owner of the mortgage instead of the original lender. Some other things, such as the available modes of payment, many also change. However, the general terms of the mortgage, such as the interest rate and payment amounts, will stay the same.
If you need help with a mortgage, consider finding a financial advisor to work with.
Mortgage Assignment Basics
Mortgages are assigned using a document called an assignment of mortgage. This legally transfers the original lender’s interest in the loan to the new company. After doing this, the original lender will no longer receive the payments of principal and interest. However, by assigning the loan the mortgage company will free up capital. This allows the original lender to make more loans and generate additional origination and other fees.
At closing, borrowers sign a document granting the original lender the right to assign the mortgage elsewhere. This means the original lender doesn’t have to ask for permission to assign the mortgage but can do so whenever it wants to. Often this occurs within a few months after the closing, but it can happen at any time during the term of a mortgage. Once a loan has been assigned, it can be assigned again.
The assignment of mortgage document uses several pieces of information to accurately identify the specific mortgage that is being transferred. These generally include:
- The name of the borrower
- The date of the mortgage
- The jurisdiction where it was recorded
- The amount of money that was originally loaned
- A legal description of the home or other property used as collateral to secure the loan.
Although a lender doesn’t need to request the borrower’s permission before assigning a mortgage, the lender does have to notify the borrower after the mortgage has been assigned. This notice will generally provide the new lender’s name, contact information and mailing address or other information need to make payments.
Effects of Mortgage Assignment
When a mortgage is assigned, the original terms of the mortgage remain unchanged. The monthly principal and interest, interest rate and total number of payments required to pay the loan off will be the same as on the mortgage when it was signed at closing.
A company assigned a mortgage may have different methods of accepting monthly payments, such as online payments, paper checks or money orders. A borrower who wants more payment methods may be able to get a new mortgage holder to provide them upon request.
Some things may change, however. For instance, the new owner of the mortgage may have a different method of handling escrow payments that are used to pay property taxes and the premiums for hazard insurance. The law requires mortgage companies to charge no more than one-twelfth the annual cost of property taxes and insurance each month. However, they can also require borrowers to maintain a cushion of up to one-sixth the annual total required to pay taxes and insurance. If a new mortgage company has a different policy on this cushion, it could change the total monthly payment.
The borrower also does not need to notify the local taxing authorities or the hazard insurance provider about the assignment. The new holder of the mortgage is required to handle these notifications.
Borrowers should check the information about where payments are supposed to go. This need to be accurate so payments will be directed correctly to the holder of the mortgage and the borrower will receive credit for them.
Another important matter that may change when a loan is assigned is the procedure the mortgage company will follow in the event of default. Borrowers should make themselves familiar with the notification methods used by the new mortgage to let them know if payments are not being received and foreclosure is in the offing.
The Bottom Line
Home mortgages are often assigned by their original lenders to other companies. Assignment usually doesn’t change much for the borrower, except that the payments will go to a different address. The original loan amount, interest payment, term and monthly principal and interest part of the payment will stay the same. Assigning mortgages frees up money for the lenders to make more loans. Borrowers don’t have to be told a mortgage will be assigned, since they agree to this at closing. However, they must be notified after an assignment and told how to contact the new mortgage holder.
- A financial advisor can help you evaluate home buying and other important financial moves. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- Borrowers can find out whether and where their mortgage has been assigned through the Mortgage Electronic Registration Systems (MERS). This is an organization created by mortgage companies to track mortgage assignments. Borrowers can use a free online service provided by MERS to find out who owns their mortgage.
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