Top 6 Mortgage Questions Homeowners Should Know
You bought the home. You celebrated. You got the keys. And now you have a monthly mortgage payment. How did this all happen? You're not 100% sure because a professional team guided you through the process, handled the paperwork, and made it all come together. But now that you're settled in, you might have some lingering questions about how your mortgage actually works.
You're not alone. Many homeowners understand they need to make their monthly payment, but beyond that, the mortgage can feel like a black box. What are your options? What happens if circumstances change? Can you make adjustments along the way?
We work with Phoenix metro homeowners every day, and these are the questions we hear most often. While we're here to provide educational guidance, remember that specific mortgage scenarios should always be discussed with a licensed lending professional. We can connect you with trusted lending partners when you need detailed advice tailored to your situation.
Let's dive into the top six mortgage questions homeowners ask—and give you the clarity you deserve.
1. Why Did My Loan Get Transferred to Another Company?
This is one of the most common—and most alarming—questions we hear. You close on your home, start making payments to one company, and then suddenly you receive a letter saying your loan has been sold or transferred to a completely different servicer. It can feel unsettling, like something went wrong.
Here's the reality: this is completely normal and happens frequently in the mortgage industry.
When you take out a mortgage, you're essentially receiving a loan that becomes a financial asset. Lenders often sell these loans to other financial institutions or investors on the secondary mortgage market. This practice allows the original lender to free up capital to make more loans to other homebuyers. Your loan might be sold to another bank, transferred to a loan servicer, or even bundled with other mortgages and sold to investors.
What this means for you:
The terms of your mortgage don't change. Your interest rate, loan balance, payment amount, and loan duration all stay exactly the same. What changes is simply where you send your payment and who handles your account servicing—things like processing payments, managing your escrow account, and sending you statements.
By law, both your old and new servicer must notify you of the transfer. You'll typically receive notice at least 15 days before the first payment is due to the new company. During the transfer, there's usually a 60-day grace period where you can't be charged a late fee if you accidentally send your payment to the old servicer.
What you should do:
Update your records with the new servicer's information, set up online account access if available, and make sure your automatic payments are redirected if applicable. Keep all transfer notices in your records. If you have questions about the transfer, both servicers are required to have customer service available to help you through the transition.
2. What's Actually in My Monthly Mortgage Payment?
Many homeowners think their entire monthly payment goes toward paying off their home loan. The reality is more complex—and understanding the breakdown can help you make better financial decisions and understand why your payment might change even if you have a fixed-rate mortgage.
Your monthly mortgage payment typically includes four components, often abbreviated as PITI:
Principal: This is the portion that goes toward paying down the actual loan balance. In the early years of your mortgage, this is usually the smallest component because most of your payment goes toward interest. As time goes on, more of each payment chips away at the principal.
Interest: This is the cost of borrowing money, calculated based on your interest rate and remaining loan balance. With a typical 30-year mortgage, you'll pay significantly more interest in the early years. For example, on a $400,000 loan at 6.5% interest, your first payment might include roughly $2,167 in interest but only $500 toward principal.
Taxes (Property Taxes): Most lenders require you to pay your annual property taxes in monthly installments, which they hold in an escrow account and pay on your behalf when taxes are due. In the Phoenix metro area, property taxes can vary significantly by municipality and school district. Your lender estimates this amount based on the assessed value of your home.
Insurance (Homeowners Insurance and possibly PMI): Your homeowners insurance premium is also typically collected monthly and held in escrow until the annual premium is due. If you put down less than 20% when purchasing your home, you likely also pay Private Mortgage Insurance (PMI), which protects the lender if you default on the loan.
Why your payment might change:
If you have a fixed-rate mortgage, your principal and interest remain constant throughout the life of the loan. However, your payment can still change if your property taxes increase, your insurance premium goes up, or your escrow account needs adjustment. The lender reviews your escrow account annually and may increase or decrease your monthly payment to ensure there's enough to cover tax and insurance bills.
Additionally, once you reach 20% equity in your home (either through payments or appreciation), you may be able to remove PMI, which would lower your monthly payment.
Understanding this breakdown helps you:
Anticipate potential payment changes
Know where to look if you want to reduce costs (like shopping for better insurance rates)
Understand how extra payments toward principal can save you money over time
3. Can I Pay Extra on My Mortgage or Pay It Off Early?
Absolutely! This is one of the most empowering things homeowners can do, yet many don't realize it's an option or worry there might be penalties involved.
The short answer: Most modern mortgages allow you to make extra payments without penalty. However, it's important to verify this with your specific loan documents or contact your servicer to confirm there are no prepayment penalties.
How extra payments work:
When you pay extra on your mortgage, that additional amount can go directly toward reducing your principal balance—if you specify that's where you want it applied. This is crucial. Some servicers might apply extra payments to next month's payment or split it between principal and interest unless you explicitly designate it as a principal-only payment.
The impact can be substantial:
Let's say you have a $350,000 mortgage at 6.5% interest over 30 years. Your monthly payment for principal and interest would be about $2,212. If you paid an extra $200 per month toward principal, you would:
Pay off your mortgage approximately 6 years earlier
Save roughly $88,000 in interest over the life of the loan
Even smaller amounts make a difference. An extra $100 per month could shave off 3-4 years and save you tens of thousands in interest.
Strategies for paying extra:
Some homeowners make an extra payment each year (13 payments instead of 12). Others round up their payment to the nearest hundred. Some apply windfalls like tax refunds or bonuses directly to principal. The key is finding an approach that fits your budget and financial goals.
Important considerations:
Before aggressively paying down your mortgage, consider your complete financial picture. Make sure you have an adequate emergency fund, are maximizing any employer retirement match, and have paid off higher-interest debt like credit cards. Your mortgage likely has one of the lowest interest rates of any debt you carry, so it may make more financial sense to prioritize other goals first.
Also, remember that money paid toward your mortgage principal isn't easily accessible if you need it for emergencies. Unlike funds in a savings account, you can't simply withdraw equity—you'd need to refinance, take out a home equity loan, or sell the property.
How to make extra payments:
Contact your servicer to understand their process. Most allow you to make extra principal payments online, by phone, or by check. Just make sure you clearly indicate that the extra amount should go toward principal reduction, not be held for future payments.
4. When Should I Refinance My Mortgage?
Refinancing means replacing your current mortgage with a new one, ideally with better terms. This is one of the most strategic financial moves a homeowner can make—but timing and circumstances matter greatly.
Common reasons to refinance:
Lower interest rate: The most common reason. If current rates are significantly lower than your existing rate (generally at least 0.75% to 1% lower), refinancing could reduce your monthly payment and save you substantial money over the life of the loan. Even a 1% rate reduction on a $400,000 mortgage could save you over $200 per month.
Shorten your loan term: You might refinance from a 30-year mortgage to a 15-year or 20-year mortgage. While your monthly payment might increase, you'll pay off your home much faster and save significantly on total interest paid. This makes sense when your income has increased or your financial situation is more stable.
Switch loan types: Some homeowners refinance from an adjustable-rate mortgage (ARM) to a fixed-rate mortgage for payment predictability, especially if they plan to stay in the home long-term or if rates are expected to rise.
Cash-out refinance: This allows you to borrow against your home's equity. You refinance for more than you owe and receive the difference in cash. Homeowners use this for home improvements, debt consolidation, or major expenses. Phoenix metro homeowners have seen significant equity growth in recent years, making this an increasingly popular option.
Remove PMI: If your home has appreciated and you now have 20% equity, refinancing can eliminate PMI payments without waiting to reach that threshold through regular payments.
When refinancing makes sense:
Consider refinancing when interest rates drop significantly below your current rate, when you have sufficient equity in your home (typically at least 20%), when your credit score has improved since you first purchased (potentially qualifying you for better rates), or when your financial goals have changed.
The break-even analysis:
Refinancing isn't free. You'll pay closing costs—typically 2% to 5% of the loan amount. To determine if refinancing makes sense, calculate your break-even point: divide your closing costs by your monthly savings. If you'll stay in the home longer than the break-even period, refinancing likely makes sense.
For example, if refinancing costs you $6,000 and saves you $250 per month, your break-even point is 24 months. If you plan to stay in your home for at least another 2-3 years, refinancing would be worthwhile.
Market considerations:
The refinancing landscape changes with market conditions. Keep an eye on rate trends, but don't try to time the market perfectly. If refinancing makes financial sense based on your situation and current rates, it's often wise to move forward rather than wait for potentially lower rates that may never materialize.
We can connect you with trusted lending partners who can analyze your specific situation, run the numbers, and help you determine if refinancing makes sense for your goals.
5. What If I Can't Make My Mortgage Payment?
This is perhaps the most stressful question homeowners face, but it's critical to address head-on. Life circumstances change—job loss, medical emergencies, divorce, or unexpected expenses can all impact your ability to make your mortgage payment.
The most important thing to know: Contact your lender immediately—before you miss a payment.
Many homeowners make the mistake of avoiding their lender out of embarrassment or fear, but lenders have programs and options specifically designed to help borrowers through temporary financial hardship. The earlier you reach out, the more options you'll have available.
Options your lender might offer:
Forbearance: This temporarily reduces or suspends your mortgage payments for a specific period (typically 3-12 months). You'll eventually need to repay the missed payments, but this gives you breathing room during a crisis. After forbearance ends, you and your lender will work out a repayment plan.
Loan modification: This permanently changes the terms of your mortgage to make payments more affordable. Modifications might include extending the loan term, reducing the interest rate, or changing from an adjustable to a fixed rate. Unlike forbearance, a modification is a long-term solution.
Repayment plan: If you've missed one or more payments but can now resume paying, your lender might let you catch up by adding a portion of the missed amount to your regular payments over several months.
Refinance: If you have sufficient equity and the issue is high monthly payments rather than a temporary income interruption, refinancing to a lower rate or longer term might reduce your payment to an affordable level.
Short sale or deed in lieu of foreclosure: These are last-resort options if you truly cannot afford the home. A short sale allows you to sell the home for less than you owe (with lender approval), while a deed in lieu means you voluntarily transfer ownership to the lender. Both options impact your credit but are less damaging than foreclosure.
What happens if you don't communicate:
Missing payments without contacting your lender starts a foreclosure timeline. After about 120 days of missed payments, the lender can typically begin foreclosure proceedings. This damages your credit significantly, you could lose your home, and you'd still potentially owe money if the home sells for less than what you owe.
Additional resources:
Look into assistance programs. The Arizona Department of Housing offers resources for homeowners facing hardship. HUD-approved housing counselors provide free advice and can help you navigate conversations with your lender. These counselors can review your finances, explain your options, and sometimes negotiate on your behalf.
The key takeaway: Don't ignore the problem. Lenders would much rather work with you to find a solution than go through the expensive, time-consuming foreclosure process. Reaching out early demonstrates good faith and opens up more possibilities for keeping your home or transitioning out of it responsibly.
6. What Happens to My Mortgage If I Sell My Home Before It's Paid Off?
Many homeowners assume they need to pay off their mortgage completely before they can sell, but that's not the case. In fact, most people sell their homes long before the mortgage is paid in full—the average homeowner stays in a home for about 13 years, well short of a 30-year mortgage term.
Here's how it works:
When you sell your home, the mortgage doesn't just transfer to the new buyer (with rare exceptions for assumable loans). Instead, you pay off the remaining mortgage balance from the proceeds of the sale. This happens automatically during the closing process.
The closing process:
Let's walk through a typical scenario. Say you're selling your Phoenix metro home for $550,000, and you still owe $320,000 on your mortgage. At closing, the title company handles all the financial transactions. They collect the buyer's funds, pay off your existing mortgage, cover closing costs (which might include real estate commissions, title insurance, and transfer taxes), and then give you the remaining proceeds.
In this example, if your total closing costs are about $35,000, you would receive approximately $195,000 from the sale ($550,000 sale price minus $320,000 mortgage payoff minus $35,000 closing costs).
What you need to have:
You need enough equity in your home to cover your mortgage payoff and closing costs. Equity is the difference between what your home is worth and what you owe. If your home is worth $550,000 and you owe $320,000, you have $230,000 in equity—plenty to cover the payoff and costs.
What if you don't have enough equity?
If you owe more than your home is worth (called being "underwater") or if you don't have enough equity to cover the mortgage and closing costs, you have a few options:
You can bring cash to closing to cover the shortfall. For example, if you owe $350,000 but your home only sells for $330,000, you'd need to bring approximately $20,000 plus closing costs to complete the sale.
You might negotiate a short sale with your lender, where they agree to accept less than the full mortgage balance. This requires lender approval and typically only happens when you're facing financial hardship.
Timing considerations:
Contact your mortgage servicer to get a payoff quote when you're ready to list your home. This quote is typically valid for 30 days and shows the exact amount needed to satisfy your loan, including any remaining principal, accrued interest through the payoff date, and any fees.
Keep in mind that you'll continue making mortgage payments until the sale closes. Missing payments during the selling process can complicate the transaction and damage your credit.
Prepayment penalties:
Most modern mortgages don't have prepayment penalties, but some do—especially certain types of loans or mortgages originated during specific periods. Check your loan documents or ask your servicer if there's any penalty for paying off your loan early through a sale. If there is, factor that into your calculations.
The bottom line:
Selling before your mortgage is paid off is routine and straightforward as long as you have sufficient equity. The title company coordinates everything, and you walk away from closing with your equity in hand, ready to use toward your next home, investment, or other financial goals.
We help Phoenix metro homeowners navigate the selling process every day and can estimate your potential proceeds based on current market conditions and your mortgage situation.
Understanding Your Mortgage Puts You in Control
Your mortgage doesn't have to be a mystery. Understanding how it works empowers you to make better financial decisions throughout your homeownership journey.
We're here to provide educational guidance and help you navigate the real estate aspects of homeownership in the Phoenix metro area. For specific mortgage questions, we can connect you with trusted lending partners who can analyze your unique situation.
Schedule Your Free Discovery Call. Whether you're exploring your options or planning your next move, we're here to help you achieve your homeownership goals.
