Mortgage Recasting
What is Mortgage Recasting?
Recasting allows you to make a big one-time payment towards your outstanding mortgage balance. After you make this large payment, your lender will then recalculate your fixed monthly mortgage payments based on the remaining, lower balance.
How Does Recasting a Mortgage Work?
The specifics can vary by lender, but here are the steps you can expect:
- The homeowner makes a payment. You’ll need to make a large lump-sum payment to a lender, typically a minimum of $10,000. This money goes toward your loan’s principal balance and reduces the amount you owe.
- The lender re-amortizes your balance. Amortization is a fixed repayment schedule that includes both the principal and interest. Once you make a lump-sum payment, the lender will then adjust the repayment schedule to reflect your new lower monthly payments
- The lender charges a small one-time servicing fee. Lenders charge a servicing fee for loan recasting paperwork and filing. They typically aren’t more than a few hundred dollars, way less than $1500-$2500 that a typical refinance costs
Again, recasting only lowers the amount you have to pay each month, it doesn’t reduce your mortgage term (e.g. 30 years or 15 years).
Key things to remember about recasting:
- It lowers your monthly payment, but doesn’t change your interest rate or loan term (unlike refinancing).
- It’s a great option if the rates have increased since your home purchase
- It is only available on conventional mortgages, not on government (FHA/USDA/VA) loans
- You cannot have a late mortgage payment at the time of recasting
- There’s usually a small one-time fee involved in recasting, but it’s typically less expensive than refinancing.
Benefits of Recasting:
- Recasting is less expensive. Instead of paying closing costs like you would with a refinance, you typically just pay a small flat-rate recasting fee.
- There are no credit or appraisal requirements. You don’t need to meet credit score requirements to recast your loan. Plus, there’s no need to worry about waiting for an appraisal like you would for a refinance.
- You can keep your current interest rate. A recast can allow you to keep your current interest rate, whereas with a refinance, you usually have to accept the current market rate.
- You can save on interest and lower your payment. A recast can be the perfect solution if you have a large amount of money to put toward your loan, but you aren’t sure how your income will change in the future. Recasting allows you to save on interest without taking on a higher monthly payment.
- You apply your lump sum directly to the principal. If your lender doesn’t allow you to apply money directly to the principal, ask if they offer recasting.
Here are some situations where recasting might be a good fit:
- You just received a large yearly bonus and want to put it towards your house.
- You’re expecting a significant decrease in income and need some breathing room with your payments.
- You recently bought a new home and are waiting to sell your old one. You can use the proceeds from the sale to recast your new mortgage for a lower payment.
Benefits of Recasting:
- Recasting is less expensive. Instead of paying closing costs like you would with a refinance, you typically just pay a small flat-rate recasting fee.
- There are no credit or appraisal requirements. You don’t need to meet credit score requirements to recast your loan. Plus, there’s no need to worry about waiting for an appraisal like you would for a refinance.
- You can keep your current interest rate. A recast can allow you to keep your current interest rate, whereas with a refinance, you usually have to accept the current market rate.
- You apply your lump sum directly to the principal. If your lender doesn’t allow you to apply money directly to the principal, ask if they offer recasting.
Before you recast, consider this:
- You’ll need a significant lump sum to make it worthwhile.
- You won’t shorten your loan term, so you’ll still be paying interest for the original length of the loan.
- Make sure your lender offers recasting. All the lenders that Carlson Mortgage works with do offer it.
In conclusion, recasting your mortgage can be a smart strategy to free up some cash flow each month if you have the extra money upfront and are happy with your current interest rate.
Questions? Have we originated your original mortgage? If we have, please contact us with any additional recast questions.