When you take out a mortgage, the company you make your payments to (the mortgage servicer) may not be the same entity that originally lent you the money (the mortgage lender).
Understanding the difference between servicing retained and servicing released is important, as it affects who manages your loan and how you interact with them over time. Knowing where your mortgage ends up — known as a Mortgage Servicing Right (MSR) — can help you anticipate your future customer service experience and gain valuable insight into how the lending industry operates.
Understanding Mortgage Servicing
When you close on a mortgage, you’re entering into a financial agreement with a lender. However, that lender may choose to either keep the servicing of your loan or transfer it to another company.
Why it matters:
- It determines who handles your monthly payments, customer service, escrow accounts, and loan-related inquiries.
- It can significantly impact your overall customer experience throughout the life of the loan.
Servicing Released
In a servicing released arrangement (also known as Secondary Market Servicing), the original lender sells both your loan and the servicing rights to a third party. This new company becomes responsible for collecting payments, managing escrow accounts, handling loan inquiries, and providing customer support.
What this means for you:
- After closing, you will receive a formal notice that your loan servicing has been transferred.
- All future payments and inquiries will go to the new servicer.
Potential benefits:
- Lower Interest Rates: Lenders often offer slightly lower rates because they receive a Servicing Released Premium (SRP) from the investor purchasing the loan.
Potential drawbacks:
- Confusion during transfer: Borrowers may experience issues like incorrect loan numbers or missed auto-payments.
- Communication disruptions: Transferring servicers can complicate access to assistance programs such as forbearance or loan modifications.
Servicing Retained
In a servicing retained scenario, the lender may either hold your loan in its portfolio or sell it to an investor — while keeping the right to manage the loan in-house.
What this means for you:
- You will continue making payments to the original lender.
- You maintain a consistent point of contact throughout the life of the loan.
Potential benefits:
- Continuity: A stable, long-term relationship with your original lender may lead to better communication and more personalized service.
- Streamlined Assistance: Your lender may be more responsive and better equipped to help with issues, modifications, or refinance requests.
- Local Expertise: For specialized situations, such as removing a borrower or releasing a portion of property, working with a familiar lender can simplify the process.
- Potential Savings: Retaining the same servicer for future refinancing may reduce fees and streamline approval.
Potential drawbacks:
- Higher Interest Rates: Loans retained in the lender’s portfolio often come with slightly higher interest rates than those sold with servicing released.
While both servicing retained and servicing released loans are common and fully legal, they offer very different post-closing experiences.
Even though the terms of your mortgage — like your rate, payment amount, and term — remain the same, the company you deal with for the next 15 to 30 years may change, and that can make a meaningful difference.
This is especially true if you encounter financial hardship or need specialized loan servicing support down the road.
Whether you’re applying for a new mortgage or exploring refinancing options, understanding how mortgage servicing works will better equip you to manage expectations, ask informed questions, and make confident decisions that support your long-term financial goals.
