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If you’re like most people, you like to save as much money as possible. That includes paying as little as you can in interest on your loans. Let’s say you hit a windfall in the lottery tomorrow. What might you do with your extra money?

One very good option would be to pay down your mortgage so you pay less interest. However, did you know that after you make a principal payment of at least $10,000 to Quicken Loans, you can have your payment recalculated with a new balance while keeping the same interest rate and loan term in order to permanently lower your monthly payment? You can.

In this post, we’ll go over what a mortgage recast is, why you might do one, whether it makes sense for you and what you need to know if you’re considering it.

What Is a Mortgage Recast?

A mortgage recast allows you to put a lump sum toward the principal balance on your mortgage. When you do this, you can request that your lender recast the mortgage. When this is done, your term and interest rate remain the same, but your lump sum payment is subtracted from the loan balance so you have a lower monthly payment than you had before the principal reduction.

In a recast, you achieve the benefits associated with a regular extra payment toward your principal – paying less interest on your loan – but you also achieve a permanently lower monthly payment because your term stays the same with a lower balance.

Why Recast?

Why might one choose to recast their mortgage? There are really two benefits:

  • You pay less interest due to a large principal reduction, even while keeping the same loan term and interest rate.
  • You’ll be lowering your monthly payment because you’ve reduced your principal balance, but your loan is re-amortized – fancy mortgage lingo for payment recalculation – over the remainder of your term.

Does It Make Sense to Recast?

Whether it makes sense to go through a recast depends both on your goals in recasting as well as the terms of your lender. First, let’s look at this from a purely financial perspective.

Doing the Math

There are two ways to accomplish a major principal reduction: a recast where your monthly payment ends up lower over the same term and an additional principal payment where your monthly payment ends up staying the same, but with a lower overall principal balance. Let’s take a look at both of these alternatives.

For the purposes of this example, I’m going to assume a $200,000 initial loan balance on a 30-year fixed mortgage at a 4.99% (5.233% APR)  interest rate. Let’s say you’ve just freed up $40,000 you want to use toward paying off your mortgage. Different states may have slightly different lending fees that apply. I’ve used Michigan. You can check your own numbers using our amortization calculator.

Let’s take a look at a recast scenario first.

Recast

Before recasting, you pay $1,072.43 monthly in principal and interest. Your total interest paid over time is $186,071.54 on a $200,000 balance. After the recast, your principal balance is $160,000. For the sake of simplicity, let’s assume you did this soon after you closed on your mortgage and had 29 years left.

Your monthly payment would be $870.81, a monthly savings of $201.62. Total interest paid would be $151,864.49, and you would be saving $45,722.17 in interest.

Without a Recast

Now, let’s say we take the same scenario but make the $40,000 payment toward principal without recasting the loan when there are 29 years left on the mortgage.

Your monthly payment remains the same, so you don’t save there. However, by doing this without recasting and otherwise keeping your monthly principal and interest payments the same, you end up saving $90,135.57 in interest over the life of the loan and finish paying off your loan 121 months early. That’s more than 10 years taken off the term of a 30-year loan.

Reasons to Recast

The math is different for everyone, but in many cases, it will make more sense from a financial perspective just to make the lump sum payment toward the principal and then keep making your monthly payment in order to pay down the loan.

Looking beyond financials, is there a reason you might recast your loan? It depends on your goals.

One reason to look at recasting is that it gives you a permanently lower payment compared to what you would have had if you hadn’t paid down the principal and re-amortized. If you have other things to spend your money on outside the monthly mortgage payment, this could be a good way to free some of that up on a monthly basis.

You can use the savings to put the money toward other bills, use it for other investments or boost a college or retirement fund.

There may also be a benefit to recasting if your lender doesn’t otherwise allow you to make extra payments that are applied directly to the principal. Some lenders will choose to apply anything extra you pay toward future payments so that they don’t lose any interest payments. Some of them will allow you to recast, but they don’t advertise it, so see what your lender allows. Quicken Loans does allow for both recasting and potentially paying off your loan early by making extra payments toward the principal without re-amortizing. We don’t have a prepayment penalty.

When Can You Recast?

If you’ve decided recasting is right for you, you should know a few things before moving forward.

First, not everyone can recast. If you have a government loan backed by Ginnie Mae – any FHA, USDA or VA loan – these can’t be recast due to government rules. Jumbo loans also typically can’t be recast.

Secondly, you need to make sure your lender allows for the mortgage recasting. Some don’t allow for it at all.

Quicken Loans offers the ability to recast our conventional loans – those invested in by either Fannie Mae or Freddie Mac.

Assuming you can recast, lenders will also have their own guidelines about when you can do it. These fall into several categories:

  • There’s usually a minimum amount of principal you have to be paying off before the lender will do a recast, either expressed as a flat amount or as a percentage of the loan balance. At Quicken Loans, we require that clients make at least $10,000 in principal reduction payments in the year prior to recasting.
  • You have to make at least two consecutive monthly payments at your current payment amount before a loan can be recast.
  • There may be a small fee associated with the recast. We charge $100 to recast your loan.
  • We don’t limit the number of times you can recast your loan.

Finally, you should be aware that it can take 45 to 60 days to complete a recast. During this time, you should keep making your regular payment. You’ll be able to make your new, lower payment as soon as you get your first billing statement reflecting the new payment amount.

Are you a Quicken Loans client looking into recasting? You can go ahead and give us a call at (800) 508-0944 in order to go over your options and get started.

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This Post Has 10 Comments

  1. It’s long but worth every spendable second as the whole post seems very informative especially for me. So, thanks for sharing…

  2. My husband & I are currently applying for a purchase loan with Quicken Loans (QL) and specifically requested one of these loans that allows recasting. None of the loan disclosures, loan estimates or anything else provided by QL has indicated this recast feature on the loan so I requested information on it to review the guidelines on it, see how it works and make sure that it is the type of loan we are getting. The response I was given by QL and my mortgage broker is that there is no guarantee that the loan will be sold to an investor that allows the loan to be recast. They tell me that it’s not QL that handles any of the recasting, that it is completely out of their control and totally up to the investor they sell it to and/or the servicer that ends up servicing the loan after the transaction closes.

    I am really confused. How can QL state throughout the above blog (on their own website) that QL offers recasting mortgages and even go into some of the details on their guidelines for their recasting options, yet tell us, their borrowers/loan applicants, that they can’t guarantee any of it because they won’t know what investor they’ll sell our loan to until AFTER we go ahead and purchase this house with a new mortgage from them. By the way, the loan estimates and disclosures al have the box checked that states they do no intend to sell the loan but clearly that’s not true based on what they literally just told me. Admittedly, we don’t really care who they sell the loan to or sell the servicing rights to as long as we get the loan product and recasting terms that QL is telling us they offer and we can have – like in this blog and what the QL reps tell my mortgage broker about this cool new loan feature/product, whatever they are calling it. We just want what is being advertised to us, and don’t care who we are writing our monthly payment checks to for it.

    So, back to how this is actually plays out, or “could” play out (but its still a roll of the dice either way), we get our purchase loan from QL because they are advertising this recasting feature on THEIR mortgage loans (among other lenders) and we believe we’re going to have this ability to recast our new mortgage and reduce our monthly payments after making some sizeable principal payments in the near future, but may actually find out that we DO NOT get this recast ability on this mortgage loan because the purchasing investor doesn’t allow it. So now we’re stuck with a higher mortgage payment for a new house that we had planned all along on recasting the mortgage to reduce the monthly payment within the first few years after liquidating other assets to pay down the principal balance and all because QL pulled a bait & switch on us (and I’m sure countless other unsuspecting borrowers) and didn’t sell us the loan product they advertised to us and that we told them we wanted and believed we were applying for. Granted, we could always refinance the loan each time we to reduce the principal loan amount, or even save it al for a one-time refinance, but then we have to pay all the closing costs and origination points all over again and take a gamble on what the interests rates are doing at that time. That defeats our purpose of getting a loan that we can recast. How is all of this this possible and how is any of it an acceptable lending practice?

    My lawyer brain kicks in and I can’t help but wonder, wouldn’t the Promissory Note have to contain language in it that outlines the terms of how a recast can be done that can changes the monthly payment since the monthly payment is a term of the contract? (Caveat: I am a lawyer, apologies if I get too technical.) I’ve seen more Promissory Notes than the average consumer and the very specific terms of the contract that relate to PAYMENTS almost always state things like 1) when each payment is due (monthly and on the day of each month, beginning on…); 2) where to send payments (although this address is usually updated when the new servicer or investor takes over the loan); 3) and how much the monthly payment is going to be for the life of the loan. Even an adjustable rate mortgage that has monthly payments that can change form month to month provides the calculation for the monthly payments so that it the payments can be determined by applying a set of calculations & rules (i.e., the interest rate shall be calculated by using the sum of 3% + LIBOR, but never to exceed a total of 7%, etc., and then the monthly payments are determined based off al of that). I would like to think that the Promissory Note for a mortgage loan that allows recasting would provide language that dictates how the payment term of the contract can be calculated, either at the fully amortized principal & interest amount set out initially, if no recast is ever requested, or, if/when a recast that meets “such and such guidelines” is received from the borrower, the loan will be re-amortized based off the then principal balance, at the same interest rate (because that contract term doesn’t change), over the remaining months left in the life of the loan.

    It’s pretty simple, ladies & gents. Why is it so complicated and something that is at the whim of the investor that purchases it? Do the investors re-write or make and amendments to the Promissory Note each time they allow a recast? If not, how are they otherwise able to modify the payment terms of the contract? They certainly can’t unilaterally modify that contract (for you non-lawyer – and non QL employee – readers who may also be reading this, that means that one party to a contract can’t change the terms of a contract without the consent or approval of the other party to the contract).

    I apologize for my rant. I am just thoroughly frustrated with all of this. I want to know that my husband and I are getting the loan product & terms we believe we are applying for and not just “rolling the dice” to see what we “may” end up with after its all said and done and then it’s too late to choose not to accept it if its not what we wanted or agreed to. So, QL, I ask you, what do you really offer and how do we know we are actually getting what we bargained for?

    By the way, we are A paper borrowers, and qualifying for a mortgage loan is not an issue in this situation so our ability to qualify for a recasting mortgage loan has nothing to do with this situation.

    1. Hi Macie:

      I’m going to get this to our Client Relations team to look into exactly what you were told. I’m also not a lawyer or one of our mortgage bankers, so I can only go so deep into the technical details and I’m going to get you to someone who can give you the proper information, but here’s what I can tell you.

      Quicken Loans does sell your loan shortly after you close on the bond market. These loans are insured by one of five major mortgage investors. The three government investors (FHA, USDA and VA) have policies which do not permit recasting. If you get a standard conventional loan, those are offered through Fannie Mae and Freddie Mac. We would sell the loan to Freddie Mac, for example, but we still handle the servicing, meaning you make your monthly payment to us and we handle things like escrow accounts as well if you have it. Of course you know this, but I’m breaking it down for the benefit of others who may read this.

      Subject to the other guidelines in this blog post, which are accurate, we offer recasting of standard conventional loans. You’re also correct that your mortgage contract doesn’t change just because it’s been sold to a mortgage investor. The investor abides by the terms of the contract. I’m going to get this to our team to look into the exact details of your situation. Thanks for reaching out and have a wonderful day!

    2. I have to update my post from last night. First, I have to say that every single person that I have talked to at Quicken Loans so far has been incredibly professional and pleasant to speak with and it has been very much appreciated. Second, I want to update any readers who read my previous post and either have the same concerns, or if you didn’t before reading my comment, you did after.

      Kevin Graham, the author of this blog article, reached out to me directly to discuss my concerns further. He was very helpful and explained that QL retains the servicing rights on 99% of the loans that they originate. This means that while the loan may be sold to an investor (like Freddie Mac or Fannie Mae, for example), QL will still be the party servicing the loan. I also learned that Freddie Mac and Fannie Mae, in addition to QL as the servicer, all allow recasting. This was very helpful to know and had not been explained to me prior.

      While I still think the initial presentation of offering the ability to recast on their mortgage loans is confusing and can mislead a borrower who ends up being in that one percentile that doesn’t get serviced by QL and/or sold to an investor that doesn’t allow recasting, perhaps just a little more explanation/education on that part of how the recasting works (or may not work) in the blog above (and anywhere else QL may share information on how they allow recasting on their loans) could close the gap on this part.

      My husband and I are applying for a standard conventional loan and are good borrowers so our loan will very likely be sold to Freddie Mac or Fannie Mae, with QL to service it. While it’s still a little bit of a gamble, I feel like the chances are slim that we won’t be able to take advantage of recasting our loan in the future as planned. When I wrote my comment last night, I was working with less information and education about recasting on mortgage loans and was under the impression that it was crap shoot or roll of the dice, a complete gamble on whether or not we would get an investor that would allow it.

      Knowledge is empowering and I appreciate all of the people at Quicken Loans that literally reached out to me by email and phone to help educate me and ease my concerns and do it all with grace. Thank you!

      1. Hi Macie:

        I want to thank you for the update. The mortgage process is confusing at times and we’re always looking for ways to more effectively explain all areas in the mortgage process. This goes for all the people who touch your loan and actually work to usher you through the process as well as our content marketing. Your feedback, and that of all of our clients, is an incredible gift. That said, I’m glad we were able to help clarify what happens after your loan closes and what your potential options would be. We look forward to working with you for many years to come and I hope you have a wonderful weekend!

  3. If you close in March with at least $10,000 downpayment and wish to recast after making two consecutive payments, does that $10,000 downpayment count toward the principal reduction requirement? Would there be any other barriers to recasting that quickly?

    1. Hi Liz:

      The down payment doesn’t count as your large payment for this purpose because when your loan is originally amortized with a schedule of principal and interest payments so that everything is paid off by the end of your loan term, the original amortization as soon as you’ve already made your down payment. Theoretically, if you had a separate payment of like $10,000, there would be nothing else stopping you from recasting.

    1. Hi Katherine:

      We offer cash-out refinances. If you would like to go over options, you can do so with Rocket Mortgage or give one of our Home Loan Experts a call at (888) 980-6716. Thanks for reaching out!

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