Once closing has taken place and the property has been transferred to you, the mortgage is just getting set up and processed. A common question among recent homebuyers is when the first monthly mortgage loan payment is due and where you’ll need to send your payments. We’ll address these questions below.
Mortgage Servicer vs. Mortgage Lender
Often, the lender who originated your home loan is not the party that will hold the loan moving forward. Many mortgages are sold on the secondary market, at which time a different company and mortgage servicer would then be responsible for the day-to-day management of your loan.
Responsibilities of the Mortgage Servicer
- Collect your monthly payments
- Forward the payments to the current owner of the mortgage (if sold since origination)
- Pay your property taxes and home insurance from your escrow account
- Prepare and distribute your annual mortgage statement showing where your payments are going (interest, principal, taxes, insurance, etc.)
- Assist you in the event of a missed payment or delinquent account. The servicer will contact you, if possible, to arrange a new payment structure until you can regain the proper payment schedule. If this is not successful, then foreclosure may be pursued by the lender.
If you haven’t received a mortgage loan payment statement or other letter explaining the payment situation within 30 days after closing, then you should contact the mortgage lender you worked with to buy the home to find out who to send your payments to. Usually, an initial mortgage payment is included in your closing costs, so you should have at least 45-60 days after closing to make your first monthly payment.
Changes in Monthly Payment
The monthly payment on a mortgage can change, even if the mortgage is a fixed rate loan, as opposed to an adjustable-rate one. With a fixed-rate mortgage, the changes may be due to variations in the property taxes, homeowners insurance, or other costs. With adjustable-rate mortgages (ARM) these changes may occur more often and can be more dramatic with shifts in the interest rate.
Fixed-Rate Loans
Fixed-rate mortgages will, for the most part, have steady monthly payments. The changes due to property taxes and homeowners insurance will change the amount you need to put in escrow, which ultimately impacts your monthly mortgage payment.
An escrow adjustment will be made at the end of the year if needed, and often it takes effect in February. For this reason, it is advisable to set aside extra funds in the preceding months in preparation for a change in the monthly mortgage payment.
Adjustable-Rate Mortgage Loans (ARMs)
Since the interest rate on adjustable-rate mortgages shift with fluctuations in the interest rate market, payments can be volatile. A seemingly small increase in interest rates can correlate to a large jump in the mortgage payment.
Since ARMs usually have lower introductory rates than fixed-rate mortgages, it is a good idea to put the money saved aside during the first few years on the ARM in preparation of rate increase. One cannot assume rates will remain stable or decrease, so the borrower must be aware from the beginning that their mortgage payments will likely rise.
Next Up, How to Remove Private Mortgage Insurance from Your Home Loan
Mortgage insurance premiums will add to the total amount you have to pay each month on your home loan; however, there are ways to remove that cost. Check out our next article on refinancing and how to remove private mortgage insurance from your home loans.
