So much thought and energy go into choosing and applying for a mortgage, it's easy to forget that closing isn't the end of the line. Instead, it's the beginning of a journey that could last decades.
Here's what you need to know about managing your mortgage from your first payment to your last.
Watch for changes in who handles your mortgage.
Your mortgage is a personal liability for you. For a financial institution, it's an asset — one that can be bought and sold just like any other investment.
After closing, it's common for lenders to sell the rights to receive your principal and interest payments. By doing so, they receive cash they can use to create additional mortgages for other borrowers to purchase a home. This means you may be making your monthly mortgage payments to a new company that purchased your loan.
Your mortgage company may also sell the servicing of your mortgage. The servicing of your mortgage loan includes responsibilities such as collecting your payments, managing your property tax and insurance payments, and issuing tax forms.
The best time to find out about a lender's plans for your mortgage is before you even apply for it. Ask your lender if they sell their loans or servicing, so you'll be aware if a new company will be managing your mortgage account after closing.
Create a mortgage file.
After closing, you'll walk away with a set of house keys and an enormous stack of documents. It's a good idea to save hard and digital copies of every document signed during closing. Note that your transfer deed and security instrument are usually filed at a county courthouse, where they become public record.
Prepare to be flooded with offers.
You may receive solicitations because your recorded documents are public information used by other vendors in marketing. That’s why you should brace yourself for a flood of sales pitches in your mailbox.
Some of those pitches will be for home warranties. If the seller didn’t provide one, you should learn the pros and cons of home warranties before you purchase one.
You’ll also receive offers to buy life insurance. It may make sense to consider life insurance, so your survivors will have money to pay off the mortgage and provide for other obligations. To protect your loved ones, carefully review the different types of life insurance.
Drop PMI when you can.
When you take on a conventional mortgage and make a down payment of less than 20% of the purchase price, you may have to pay for private mortgage insurance, or PMI, each month. This insurance protects your lender from risk of you defaulting on the loan.
For many loans the PMI will eventually be removed. On other loans, the mortgage insurance could be paid through the life of the loan. But in some cases, it may also be removed earlier at the borrower's request if the equity in the home has reached a predetermined amount. Check your loan documentation or call your mortgage servicer to understand the terms of your loan.
Understand your escrow.
If your mortgage servicer is collecting your property taxes and homeowners insurance premiums in your monthly payment, they'll keep the funds in an escrow account. The servicer will make payments from your escrow account to the appropriate billers. Typically, those payments are made yearly. Keep in mind your overall mortgage payment could fluctuate with changes in your property taxes and homeowners insurance premiums. Your servicer will provide you a yearly escrow account statement and notify you about changes in your escrow for these amounts.
Watch for your mortgage tax forms.
When filing your federal income tax return, you may be able to deduct the interest you paid on your mortgage for that filing year. Your mortgage servicer reports the amount of interest using IRS Form 1098. Be sure to wait until you receive this form to file your taxes, so you don't miss a potential deduction. Recent tax reform changes limit the interest deduction for mortgage loans. Consult with your tax advisor regarding your individual situation. USAA members are eligible for a discount through USAA Perks® when using TurboTax®. See note 1 , See note 2 , See note 3
Monitor interest rates.
If mortgage interest rates drop, you may benefit from refinancing. If you have a VA loan, it may be easier to refinance with a VA Interest Rate Reduction Refinance Loan, rather than a conventional loan. A VA IRRRL provides a streamlined process for refinancing with typically no requirement for a property appraisal and less paperwork.
You shouldn't refinance without first doing some analysis. Refinancing could end up costing you more money over the long run, especially if you've been paying on your existing mortgage for several years. When looking at your options, consider the closing cost to refinance, your potential savings and how much longer you plan to stay in your home.
Advice and resources for homeowners
Know what to expect when buying or selling, owning, maintaining and insuring a home.