Your mortgage payment probably feels like a permanent line item in your budget. But you can actually lower the amount you pay each month with a mortgage recast. The process entails paying your lender a lump sum to reduce your loan principal, then getting a recalculated monthly payment. The biggest benefit is that you get to keep your interest rate and loan term while still lowering your payment.
What Is A Mortgage Recast?
A mortgage recast, or mortgage re-amortization, allows you to make a lump-sum payment toward the principal balance on your mortgage to lower the monthly payment, without sacrificing your loan term and interest rate. This alters your loan’s schedule of repayment, or mortgage amortization.
Mortgage refinancing is another way you can lower your monthly payment, but it’s not quite the same as recasting. Refinancing involves taking on a new loan and using it to pay off your existing mortgage. However, this may be a more expensive option due to higher upfront fees and potentially higher rates, depending on when you refinance.
Understanding The Recasting Mortgage Process
The mortgage recasting process can take up to 45 – 60 days to complete. Here’s a step-by-step overview of how the process works:
- Contact your lender. Ask your lender if mortgage recasting is available. If it is, find out how their specific process works.
- Review eligibility guidelines. Each lender has their own guidelines, such as mortgage type and minimum lump-sum payment.
- Determine a lump-sum payment. Calculate the payment amount you want to make, keeping in mind your lender’s minimum requirement (often around $10,000).
- Pay the recast fee. Though the cost varies by lender, you can expect to pay anywhere from $250 to $500.
- Keep making your mortgage payments. It can take time for your recast mortgage to go into effect. While you’re waiting, continue to make mortgage payments based on your original loan.
- View your new loan amount. After the transaction is processed, which can take up to 45 – 60 days, you’ll receive a notification of your new loan balance and monthly mortgage payment.
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Qualifying For A Mortgage Recast
Not every borrower will qualify for a recast. For example, government-backed loans, including FHA, USDA and VA loans, cannot be recast. Many lenders also won’t recast jumbo loans. Furthermore, some lenders may not allow recasting at all – but many do.
If your lender does allow recasting, they will have their own guidelines about when you can do it:
- Most lenders require the borrower to pay a minimum amount of money toward the principal before qualifying for a recast (usually $10,000), though it can also be a percentage of your principal.
- You must make at least two consecutive monthly payments at your current amount before a lender recasts your loan.
- There’s usually a fee of $250 to $500 that comes with the recast.
- There’s typically no limit on how many times you can recast your loan.
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How To Calculate a Mortgage Recast
Recasting your mortgage can help lower your monthly payments after you reduce your principal with a lump-sum payment. Let’s look at a before-and-after using our mortgage amortization calculator. Since different lenders may have slightly different fees, you can check your own numbers using your lender’s requirements.
Say you have a $250,000 initial loan balance on a 30-year fixed-rate mortgage at a 4.99% interest rate. Your original monthly payment would be $1,340.53, and your total interest paid over the 30-year term would be $232,589.57.
Now fast-forward 10 years. Your current balance is $202,798.68, and you have $40,000 you’d like to use toward paying off your mortgage. By recasting, your loan balance drops to $162,798. Your monthly payment for the remaining 20 years is just $1,073.50, saving you $267 per month. By recasting (starting from the current balance), you’ll save about $23,303 in interest over the rest of your mortgage term, assuming you make only the new required payments.
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When To Consider A Mortgage Recast
A mortgage recast may not be the right choice for every borrower, but depending on your unique financial situation, a recast could make sense for you. Here’s when to consider it.
- You have the extra cash and can afford a lump-sum payment.
- You’re ahead on your mortgage payments.
- You want to avoid a home appraisal or closing costs that come with a refinance.
- You’d prefer to skip a credit check.
- You don’t mind keeping your current interest rate and loan term.
Pros And Cons
Recasting a mortgage has its benefits and drawbacks. Before making a decision, talk to your lender and other professional advisors to see exactly how the process will impact your finances.
| Pros | Cons |
|---|---|
| More cost-effective than refinancing: While refinancing doesn’t require a lump-sum payment, it can be expensive once you factor in the cost of a home appraisal and closing costs. Recasting may prove to be the more cost-effective option if you’re looking to save money up front. | Certain loan types may not qualify: Government-backed loans like FHA, VA and USDA loans usually don’t qualify for a recast. Some lenders may not recast jumbo loans either. |
| Maintain current interest rates and loan terms: With a recast, you’ll keep the same interest rates and loan terms. Then, with a reduced principal amount, you’ll pay less in interest. | Maintain current interest rates and loan terms: With a recast, you’ll keep the same interest rates and loan terms. Then, with a reduced principal amount, you’ll pay less in interest. |
| No impact on credit score: Unlike refinancing, recasting doesn’t require a credit check and won’t impact your credit score. This also means you won’t need to worry about meeting a credit score requirement. | Loan term doesn’t shorten: While recasting your mortgage can be a great way to lower your monthly principal payment, it doesn’t shorten the term of your loan. |
| Recasting fees: Each time you recast, you’ll be required to pay recasting fees. The exact amount varies by lender, but it is usually $250 to $500. |
Mortgage Recasting Alternatives
There are two other ways to lower your mortgage balance and potentially save money over time: making additional payments and refinancing your home loan.
Additional principal payments: Instead of recasting, you can make extra payments designated toward your principal balance. But unlike a mortgage recast, these extra payments won’t change your monthly payment amount because your loan doesn’t get re-amortized. Instead, you’ll lower your overall balance and pay off the loan in full ahead of schedule.
There are a few benefits that come with making extra loan payments without having to recast:
- Pay off your loan early.
- Use with any type of mortgage.
- Make extra payments of any size, instead of meeting a lender’s lump sum minimum for recasting.
Refinancing: Another option is to refinance your mortgage. With this process, you apply for an entirely new loan, either with your current lender or with a new one. You’ll get all new loan terms, including the length of your mortgage and interest rate. However, the cost to refinance a mortgage is more expensive than recasting. You’ll need to cover the appraisal, credit check and other closing costs.
But there could be some potential advantages, such as:
- See if you qualify for a lower interest rate.
- Shorten your loan term to pay off your mortgage faster and reduce overall interest.
- No need for a lump sum of cash.
FAQ
The Bottom Line: Is A Mortgage Recast Right For You?
A mortgage recast allows you to take a lump sum of money and put it toward your principal balance, which lowers your monthly mortgage payment – making it more manageable over the life of the loan. Other alternatives for either lowering your payment or paying off your mortgage more quickly include refinancing the loan or making additional principal payments.
Ben Shapiro
Ben Shapiro is an award-winning financial analyst with nearly a decade of experience working in corporate finance in big banks, small-to-medium-size businesses, and mortgage finance. His expertise includes strategic application of macroeconomic analysis, financial data analysis, financial forecasting and strategic scenario planning. For the past four years, he has focused on the mortgage industry, applying economics to forecasting and strategic decision-making at Quicken Loans. Ben earned a bachelor’s degree in business with a minor in economics from California State University, Northridge, graduating cum laude and with honors. He also served as an officer in an allied military for five years, responsible for the welfare of 300 soldiers and eight direct reports before age 25.
