The complexity of the mortgage process can make searching for and securing a loan difficult and confusing. There are many considerations to be made by both the lender and the borrower and finding a match may seem difficult.
One relevant complication is that you may find cases where your mortgage lender does not service your loan. While this isn’t a terribly significant issue, it can add some inconvenience and confusion to a process that doesn’t need more hurdles.
What is the difference between a mortgage lender and a mortgage servicer?
First, it is important to understand that mortgage lenders and mortgage servicers are not mutually exclusive capabilities within one company. While it’s common for lenders to sell the servicing elsewhere, it’s possible for your lender to also be your servicer.
So, what separates them?
A mortgage lender is the financial institution that provides you the loan. They are who provide you the money for the house.
After you have received your loan, a mortgage servicer is who manages it. If you have day-to-day questions, need to adjust your payments, or simply make a regularly timed payment, you would contact your servicer.
While it certainly doesn’t need to be a prerequisite, the advantage of choosing a lender who services their loans is clear: simplicity. When your lender maintains servicing on your loan, you can feel a little more secure in the knowledge that the relationship you have already created will continue and you won’t need to re-find your sense of security in a new partner that you may not know as well.
Why doesn’t my lender service my loan?
Typically, and perhaps unsurprisingly, a mortgage lender’s decision to service a loan or transfer servicing elsewhere comes down to two things: capability and profitability.
As Forbes details, services have a number of responsibilities to attend to throughout the life of your loan.
They manage and track your monthly payments, including the accurate and timely delivery of statements.
If you have an escrow account, they also manage your interactions with that, including property tax and insurance payments.
The function you might find most relevant is a servicer’s responsibility to respond to your questions- if you need information on your account, your servicer can answer. More importantly, if you believe you’ve found an error in your account, they are obligated to investigate and report their findings to you; they need to correct the error or inform you that there wasn’t one and why.
Servicers handle regular maintenance tasks, such as ensuring that you have enough flood or homeowners insurance, notifying you of interest rate changes (only applicable for adjustable rate mortgages), and communicating with you through refinances.
The type of loan you receive will also affect your lender’s ability to service your loan (or their need to transfer servicing). Some loans are legally required to be serviced by a designated agency, while others may be ineligible for servicing based on the financial institution that backs the lender. In that case, the lender may still provide the loan but be unable to service it.
If nothing else, life can be just a little easier if your lender is also your servicer. However, if you do find that the right loan for your mortgage situation requires an outside servicer, that’s okay too.