It's common belief that when you make your mortgage payment to a bank or other large mortgage servicing company, they are the ones earning the interest you pay each month. While this would seem like simple common sense, it's actually much more involved, and the truth may surprise you.
Follow the steps to see where your payment may really end up:
- First, you pay your loan servicer.
- Next, your servicer takes a small fee for the administration of your loan and escrow account, then sends your payment off to Fannie, Freddie, Ginnie Mae, or other large aggregators of loans.
- These agencies have pooled your loan with others to create Mortgage Backed Securities. They send your payment and others off as interest to the investors that bought that security.
- These investors are usually large pension or mutual funds. The interest earned goes into those funds as earnings on the original purchase of the mortgage security.
- Surprise. If you have any kind of pension or retirement account with investments in bonds and mutual funds, etc., you may very well be earning that interest yourself. Mortgage Backed Securities are a common part of balanced funds.
Do you have more questions about the home financing cycle? Reach out, and we'll be happy to help!
To help you find the most accurate information as it relates to your mortgage, personal finances, the home buying process, and more, visit our Incident Resource Center here.
