What Happens To Your Mortgage If Your Bank Fails?

For most people, buying a home is one of the most significant investments they will ever make. To finance their purchase, many homeowners take out a mortgage from a bank. But what happens if the bank fails? In this blog, we’ll take a look at what happens to your mortgage if your bank fails, the risks that banks carry when it comes to getting a mortgage, and why using a mortgage broker instead is a better option.

What happens to your mortgage if your bank fails?

If your bank fails, your mortgage will be transferred to a new lender. This transfer process is called ‘assignment’. The new lender will be appointed by a government agency or a private company that has been hired to manage the failed bank’s assets.

In most cases, your mortgage terms and conditions will remain the same after the transfer. However, you may have to deal with a new lender and possibly different customer service procedures. Also, if the new lender is not in the same city or state, you may have to deal with new state laws and regulations.

If your mortgage is sold to another lender, you have the right to know who the new lender is and how to contact them. You also will get a 60-day grace period for your first mortgage payment with the new servicer when the transfer occurs. This just means that any payment not received in the first 60 days can not be claimed as a late payment against your credit nor can a late fee be charged.

What risks do banks carry when it comes to getting a mortgage?

Banks carry significant risks when it comes to getting a mortgage. First, banks face the risk of interest rate fluctuations. If interest rates rise, the value of the mortgage decreases, and the bank may not recoup the full amount of the loan. Additionally, banks may be forced to sell mortgages at a loss if they need to raise cash quickly.

Second, banks may face reputational risks if they lend to borrowers who default on their mortgages. The 2008 financial crisis showed that banks that lent to subprime borrowers faced significant reputational damage, leading to a decline in consumer confidence and a loss of business.

Why using a mortgage broker instead is better

Mortgage brokers are independent professionals who can help you find the best mortgage rates and terms from a variety of lenders. Mortgage brokers work with several lenders and can help you compare different loan offers to find the best fit for your needs. Mortgage brokers can also provide advice on how to improve your credit score and financial position to get better mortgage terms.

Using a mortgage broker has several advantages over going directly to a bank. First, mortgage brokers have access to a broader range of lenders, including banks, credit unions, and other financial institutions. This means you have a better chance of finding the best mortgage rates and terms that suit your needs.

Second, mortgage brokers can save you time and money by doing the legwork for you. They can help you prepare your financial documents and submit your application to multiple lenders, saving you time and effort.

Third, mortgage brokers are not paid by you, instead, they are paid by the lender once your mortgage is approved. This is why we’re able to get you a loan for thousands of dollars cheaper than going to a Bank or Credit Union. This means you can get expert advice and support without any out-of-pocket expenses.

Conclusion

If your bank fails, your mortgage will be transferred to a new lender, and in most cases, your mortgage terms and conditions will remain the same. Banks carry significant risks when it comes to getting a mortgage, including the risk of lending to borrowers who default on their mortgages.

Using a mortgage broker can help you find the best mortgage rates and terms from a variety of lenders, save you time and money, and provide expert advice without any upfront costs. So, consider using a mortgage broker when purchasing your home, as they can help you navigate the complex process of obtaining a mortgage, from pre-approval to closing.

Overall, buying a home and obtaining a mortgage can be a daunting and overwhelming process. However, by understanding the risks involved and seeking the help of a mortgage broker, you can make informed decisions and find the best mortgage that suits your needs. Remember, your home is likely to be one of the most significant investments you’ll ever make, so take the time to do your research and seek professional advice before making any commitments.