February 04, 2016

How it Works: Mortgage Servicing

How it Works: Mortgage Servicing - illustration of a lightbulb with gears inside.

How it Works: Mortgage Servicing

You found your dream home and closed on your mortgage. Now you have questions about your loan, so who should you call?

After closing, a mortgage servicer will be the main point of contact on your mortgage loan, responsible for the day-to-day management of your account. This includes collecting and crediting your mortgage payments and handling your escrow account if you have one. They are also the ones to contact if you're having trouble paying your mortgage or are in danger of missing a mortgage payment. You should call them immediately in these situations. Their contact information is on your statement or mortgage payment coupon book.

Here's how mortgage servicing works and what your rights are:

Collecting Payments

One of the primary activities of a mortgage servicer plays is collecting and distributing payments. Every month, you'll remit your mortgage payment to your mortgage servicer.  The servicer credits your payment to your account the day it is received. In turn, the servicer distributes your payment to your lender and funds your escrow account if you have one.

Servicers also can provide you with a payoff statement on your account if you request it. 

Maintaining Escrow Accounts

When you choose to escrow your real estate taxes and property insurance premiums your lender or servicer will set up an escrow account in your name with money from your mortgage payment. Your servicer will draw money from the escrow account to pay your tax and insurance bills as they become due throughout the year. You'll get a statement with all estimated escrow payments within 45 days of establishing an escrow account. And each year your mortgage servicer will give you an annual statement detailing the activity in your escrow account.

Getting a New Servicer

Sometimes your mortgage lender will be your mortgage servicer, however, it's not unusual for lenders to sell and/or transfer the rights to service your mortgage to another company.  If this happens, your servicer will send you a letter with information about your new servicer at least 15 days before the effective day of the transfer.

A mortgage is one of the biggest financial commitments you'll ever make so it's important to make your mortgage payments on time and to reach out to your servicer with any questions about your loan – especially if you're struggling to make your payments.  

Follow this series to learn more about how things work in the mortgage industry, from the secondary mortgage market to closing on your loan.

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