## Why Do Mortgages Get Sold?
When you take out a mortgage, you’re essentially borrowing money from a lender to buy a house. The lender then sells your mortgage to an investor, who collects your monthly payments and earns interest on your loan.
There are a few reasons why lenders sell mortgages:
* **To raise capital:** Lenders need capital to make new loans. By selling mortgages, they can free up some of their funds so they can lend to other borrowers.
* **To manage risk:** Mortgages are a risky investment, so lenders often sell them to investors to spread out the risk.
* **To comply with regulations:** Some regulations require lenders to sell a certain percentage of their mortgages.
## Who Buys Mortgages?
Mortgages are typically bought by large financial institutions, such as banks, investment firms, and insurance companies. These institutions have the resources to manage the risk of investing in mortgages.
## How Are Mortgages Sold?
Mortgages are sold through a process called securitization. In securitization, a group of mortgages is pooled together and sold as a security. The security is then divided into smaller pieces, called tranches. Each tranche has a different level of risk and return.
Investors can buy tranches of mortgage-backed securities based on their risk tolerance and investment goals.
## What Happens to My Mortgage When It’s Sold?
When your mortgage is sold, you will receive a notice from the new servicer. The servicer is the company that will collect your monthly payments and handle your loan.
The sale of your mortgage will not affect your monthly payments or the terms of your loan. However, you may need to update your payment information with the new servicer.
## Benefits of Selling Mortgages
There are a few benefits to selling mortgages:
* **Frees up capital:** Lenders can use the capital from selling mortgages to make new loans.
* **Manages risk:** Selling mortgages spreads out the risk of investing in mortgages.
* **Complies with regulations:** Selling mortgages can help lenders comply with regulations.
## Risks of Selling Mortgages
There are also some risks to selling mortgages:
* **Interest rate risk:** If interest rates rise, the value of the mortgages could decline.
* **Credit risk:** If borrowers default on their loans, the value of the mortgages could decline.
* **Prepayment risk:** If borrowers pay off their loans early, the value of the mortgages could decline.
## Conclusion
Mortgages are sold for a variety of reasons. The sale of mortgages can benefit lenders, investors, and borrowers. However, there are also some risks associated with selling mortgages. Investors should carefully consider the risks and benefits before investing in mortgage-backed securities.
## FAQs
### What is the difference between a mortgage and a mortgage-backed security?
A mortgage is a loan that is used to buy a house. A mortgage-backed security is a security that is backed by a pool of mortgages.
### Who buys mortgage-backed securities?
Mortgage-backed securities are typically bought by large financial institutions, such as banks, investment firms, and insurance companies.
### How are mortgage-backed securities sold?
Mortgage-backed securities are sold through a process called securitization. In securitization, a group of mortgages is pooled together and sold as a security. The security is then divided into smaller pieces, called tranches. Each tranche has a different level of risk and return.
### What are the risks of investing in mortgage-backed securities?
The risks of investing in mortgage-backed securities include interest rate risk, credit risk, and prepayment risk.