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Mortgage Servicing, Explained

3-Minute Read
February 12, 2024

As a first-time home buyer, you put a lot of thought into choosing your lender to originate your loan, but what happens after you close on your home? At that point, your mortgage servicer becomes your main point of contact and will collect your payments and manage the loan.  

And your mortgage originating lender and mortgage servicer will not necessarily be the same. This article explains mortgage servicing, how it differs from mortgage lending, and what your options are as a borrower. 

What Is A Mortgage Servicer?

A mortgage servicer is responsible for handling all the aspects of your mortgage after it closes. Your servicer sends your monthly statements, collects your payments and pays your property taxes and homeowners insurance.

They’re also your primary point of contact if you have questions about your home loan. If you have trouble making your mortgage payment and are in danger of foreclosure, your servicer will help you come up with a plan to get current on your mortgage.

Mortgage Servicer Vs. Mortgage Lender

Many borrowers don’t realize that a mortgage servicer and mortgage lender are not always the same company. Your lender is the financial institution that loans you the money to buy your home. Whereas a servicer is the company that sends your statements and collects your mortgage payments.

Some originating lenders are also mortgage servicers. But other lenders choose to transfer your loan to a mortgage servicer. If this happens, your originating lender is required to notify you at least 15 days before the transfer.

How The Mortgage Loan Servicing Process Works

Loan servicing can be carried out by financial institutions, non-bank entities or third-party vendors.

Each month, your mortgage servicer generates and sends your monthly loan statement. Once you’ve paid your mortgage, your servicer collects the funds and passes this payment on to the appropriate parties. For example, your servicer is responsible for managing your escrow account and pays your homeowners insurance and property taxes through this account.

Here are your mortgage servicer’s main responsibilities:

  • Processing loan payments: Your servicer processes your payments and credits them to your account.

  • Responding to borrower questions: If you have a question about your mortgage or spot an error on your monthly statement, you’ll reach out to your loan servicer for information.

  • Keeping track of principal and interest payments: Your servicer is responsible for managing the details of your loan, like ensuring your principal balance and interest charges are accurate.

  • Managing borrower escrow accounts: Your servicer also manages your escrow account and ensures your homeowners insurance and property taxes are paid on time.

FAQs About Mortgage Servicers

A mortgage servicer handles the day-to-day aspects that come with managing your loan. They collect your payments and handle the principal, interest and escrow payments. Here’s some additional information about mortgage servicing.

How do mortgage servicers differ from mortgage lenders?

Your mortgage lender is the financial institution that loaned you the money to buy your home. A mortgage servicer manages your loan while you pay it off. Your lender may continue to act as your servicer, but they may transfer the loan to another servicer.

Are there fees for mortgage servicing?

Yes, but nothing you will have to pay. Most servicers charge an annual fee between 0.25% and 0.5% of the outstanding mortgage balance, but this is already built into your loan payment at closing and doesn’t change based on your servicing lender.

Can I choose my own mortgage servicer?

Unfortunately, you can’t choose your own mortgage servicer. When you’re shopping around for a mortgage, you can look for lenders who usually service the loans they originate. But there’s no guarantee your lender won’t transfer your loan to another servicer.

How do I switch mortgage servicers?

The only way to switch mortgage servicers is by refinancing your loan with another lender. But there’s no guarantee that the lender will choose to keep your loan, so you may end up in the same position. If you’re having issues with your servicer, you can reach out to the Consumer Financial Protection Bureau (CFPB) for help.

How do mortgage loan servicers make money?             

Mortgage servicers make money by charging a small percentage of the outstanding loan balance. This is known as a servicing fee, and usually costs between 0.25% and 0.5% of the balance. As stated above, this fee is not paid by borrowers and is built into the rate at which you closed.

The Bottom Line

Your mortgage servicer acts as your main point of contact after you buy your home. If you have questions about your bill or are having trouble making a payment, you’ll contact your servicer with questions.

Unfortunately, you don’t have a lot of say in who services your loan, but you can choose your lender. Shopping around for the right lender will help you score the best rates and terms on your mortgage. If you’re ready for homeownership, you can start the mortgage approval process today.

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Jamie Johnson

Jamie Johnson is a Kansas City-based freelance writer who writes about a variety of personal finance topics, including loans, building credit, and paying down debt. She currently writes for clients like the U.S. Chamber of Commerce, Business Insider, and Bankrate.