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Mortgage Basics
For most people, purchasing a home is nerve racking enough. The most difficult part is understanding what finance options are out there and which one best suits your needs. Remember, lending is a business and lenders are in the business of making money through loaning money and getting paid interest on this.
So where does a lender get this money in the first place?
The money a lender has to loan comes form many sources. Take for example a person who has a large sum of money in a savings account with a bank or other finance company. He is paid 4% interest per year on this. The lender takes this money, loans it to you and charges 9% interest.
Lenders generally sell their loans on to a secondary market such as Fannie May who buy the loans and therefore leave the lender with an almost inexhaustible supply of money. Today billions of dollars of mortgages are arranged each year and sold on to the secondary market. In fact, the vast majority of loans are sold on to the secondary market. The loan can be sold over again and again so do not be surprised if this happens with your loan too.
Always check with your lender if you get any letters advising you that your loan has been sold on. There are a lot of scams out there. The main one is about people receiving official looking letters from so called lenders advising them that their loan has been sold on to some company on the secondary market and that they now have to send their mortgage check to this company. For this reason, always check with your lender if you receive this type of a letter. The lender is required by law to provide to you the name and a toll free number of the new lender.
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