As long as I’ve owned a home, I’ve had a mortgage. The mortgage I generally have had is usually through whatever lender came through at the time of my home purchase, but isn’t necessarily one of my choosing – it hasn’t mattered much on the company though, because as long as the mortgage rate was what I agreed to, it didn’t matter to me. Within a year or so of buying the home and establishing the mortgage, it always seems that the initial lender “sells” off the mortgage to another institution or bank. When/if that happens, the new company assumes the same terms and my mortgage remains unchanged. Same thing when I have refinance the home – the refinance company comes in with a better rate (used to, at least) and within a short time frame, sells the mortgage off to another company. To make things even stranger, this has happened to me even with an established mortgage of several years with the same company/bank. I can’t fathom why/any benefit the banks get from doing this.
TL;DR: why do banks sell/transfer mortgages around if there is no change to your term? How does it benefit them?
In: 293
I think it’s interesting to look at this the other way around.
Consider lotteries where the big-prize winner has the option of taking a lump sum now, or an annuity for however many years.
Usually the annuity pays out more overall, but the lump some pays out more now. So on one level, the annuity appears to make a lot of sense. But if you have some financial literacy – or better yet, hire a professional, you can grow that lump sum faster than the annuity.
So for your bank, your mortgage is essentially an annuity. It will pay out more than a lump sum, eventually. But if they have some financial literacy, they should be able to grow the lump some into something more productive. And generally the banks do believe they have some financial literacy.
So when the bank sells your mortgage, from their point of view, they’re converting that annuity into a lump.
The flip-side of this is why anyone would buy them. This comes down to different investors having different risk-tolerance. a 20yo with their whole life to fix their mistakes can make risky calls – a 50yo with their retirement looming can’t accept the same risks. “mature” mortgages are less risky, so they can go find a nice peaceful fund to mature in.
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