How to Switch Loan Servicers and What to Expect
Learn to manage your loan effectively when its servicer changes, understanding both involuntary transfers and how you can proactively choose a new one.
Learn to manage your loan effectively when its servicer changes, understanding both involuntary transfers and how you can proactively choose a new one.
A loan servicer manages the administrative aspects of a loan from disbursement until repayment. This includes sending monthly statements, collecting payments, maintaining payment records, and sometimes managing escrow accounts for taxes and insurance. While the servicer handles these operations, they typically do not own the loan; the loan owner is usually a lender or investor. Borrowers generally cannot choose their loan servicer directly for an existing loan, but servicers do change, and there are specific ways a borrower might end up with a new one.
Loan servicers are assigned by the loan owner, which can be the original lender or an investor. Borrowers typically cannot initiate a switch of their loan servicer for an existing loan. Changes commonly occur due to the sale of a loan to another lender or investor, or the transfer of servicing rights between companies. Lenders often sell mortgages to free up capital or as part of portfolio management strategies. The loan owner may transfer servicing rights to an entity specializing in loan administration.
When a loan servicer changes, federal regulations require specific notifications. For mortgage loans, the Real Estate Settlement Procedures Act mandates that both the old and new servicers provide written notice of the transfer. The transferring servicer must send a notice at least 15 days before the effective date.
The new servicer must send a notice no more than 15 days after the transfer date, or a single combined notice can be sent at least 15 days prior. These notices must include the new servicer’s name, contact information, the date the old servicer stops accepting payments, and the date the new servicer begins accepting them. While the servicer may change, the original loan terms, such as interest rate, principal balance, and loan term, remain unchanged.
Upon receiving notification of a loan servicer change, review all provided notices from both the old and new servicers. These documents contain new account numbers, payment addresses, and contact information for the new servicer. Compare the information from both letters to ensure consistency and accuracy.
To avoid potential scams, verify the new servicer’s legitimacy. Contact your original lender or the previous servicer directly using known legitimate contact information, rather than relying solely on the new notice. If you have automated payments set up, update these arrangements. Do not assume automated payments will automatically transfer; you will likely need to cancel payments to the old servicer and set up new ones with the new servicer using their specific account and routing details.
During the transition, federal law provides a 60-day grace period from the effective transfer date, where late fees cannot be imposed if you mistakenly send a payment to the old servicer. The old servicer is generally required to forward the payment or return it to you.
Begin sending payments to the new servicer as soon as possible to ensure proper crediting, and retain records of all communications and payments. If your loan includes an escrow account for taxes and insurance, confirm these payments continue to be made on time. If you encounter issues, such as payments not being credited correctly, send a written notice of error to both the new and old servicers, who are required to investigate and respond.
Refinancing an existing loan is the only direct method a borrower has to obtain a new loan servicer. This process involves taking out a new loan to pay off your current one. When you secure a new loan, it comes with its own lender and a new servicing relationship. While the new servicer may or may not be the same as your previous one, refinancing provides an opportunity for a change.
The refinancing process typically begins with applying to new lenders, which involves credit checks, income verification, and often an appraisal of the property. After submitting your application, the lender will provide a Loan Estimate detailing the proposed terms, interest rate, and estimated closing costs. If the terms are acceptable, you proceed to underwriting, where your financial information and the property’s value are reviewed. The process concludes with signing new loan documents and paying closing costs, which generally range from 2% to 6% of the new loan amount.
Financial considerations are important when deciding to refinance. Beyond the new interest rate and monthly payment, you must account for closing costs, which can include application fees, appraisal fees, title services, and origination fees. These costs can be substantial, and it is important to calculate the “break-even point” to determine how long it will take for your savings from a lower interest rate to offset the upfront expenses. Refinancing should be driven by overall financial benefit, such as securing a lower interest rate, reducing monthly payments, or changing loan terms, rather than solely by a desire to switch servicers.