Everything You Need To Know About Mortgage Recasting

Key Takeaways

  • A recast mortgage can benefit homeowners looking to decrease their monthly mortgage payment but keep their existing interest rate.
  • It is worth considering whether a mortgage recast or refinance will best benefit your situation.
  • Use a reliable mortgage recast calculator to determine the potential change in your monthly mortgage payments.

If you’re a homeowner with a mortgage payment, you may find yourself in the situation of making extra mortgage payments to pay down your principal balance. Did you know that in this scenario, you could be qualifying yourself for a lower monthly payment? Referred to as a recast mortgage, this process allows homeowners to keep their interest rate the same while lowering the minimum payment. Continue reading to learn how a recast mortgage could benefit you.

What Is A Recast Mortgage?

A recast mortgage refers to the process of reevaluating your monthly mortgage payments by taking the balance of the loan and dividing it by the remaining months of the mortgage term. This can result in lower monthly mortgage payments for homeowners who have contributed a lump sum or increased monthly payments in the past.

One of the downsides to making extra mortgage payments is that the minimum payment will not decrease as you pay off more of the loan. However with a recast mortgage, homeowners are allowed to reinvest the difference or simply add it to their savings, making it an appealing option for those approaching retirement.


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mortgage recast

Mortgage Recast Calculator

In order to calculate the terms of mortgage recast, you will need to have a few numbers ready: the remaining balance of your loan, the number of months left, and the interest rate. By looking at these factors, you will be able to get a better idea of how your existing mortgage payment could change. There are several useful online recast calculators that can help you get a better idea of how your payments could change. For example, this mortgage recast calculator allows homeowners to insert each variable and get a better idea of their new payments.

How Does A Mortgage Recast Work?

In order to recast a mortgage, homeowners will first need to meet with their lender to discuss whether or not a recast is possible. Depending on your mortgage provider, this option may or may not be a possibility. Additionally, there are fees associated with a recast mortgage that will depend on your lender, so this is also an important topic to review.

If you do decide to move forward with a recast mortgage, there are several steps that will take place. The first step will usually involve the homeowner making a lump-sum mortgage payment. The amount can vary; however, most lenders will require a payment of at least $5,000. These payments will be applied to your outstanding loan amount, allowing the total amount owed to decrease. A lender will then reevaluate the terms of the loan by using the reduced balance and timeframe of the original mortgage. Keep in mind that a mortgage recast is often utilized by homeowners who have paid a significant portion of their mortgage or who have made extra payments over time.

Depending on the remaining amount of the loan, homeowners should see their monthly required payments decrease. This is a result of the increased monthly payments or lump sum reducing the remaining balance of the mortgage. Be aware, a recast mortgage loan will keep the original interest rate of the mortgage. The timeline of the initial mortgage will also remain the same, but––as always––homeowners will be permitted to make increased payments in the future. Make note of your lender’s requirements for a recast mortgage, as homeowners are often only permitted to recast a mortgage once.

Recast Vs Refinance

If you find yourself ineligible for a recast mortgage, or it simply will not benefit your situation, another option to look into is refinancing. Refinancing differs from a mortgage recast in that it often allows for a reduced interest rate in addition to lower monthly payments. Homeowners typically turn to refinancing under similar circumstances to a recast mortgage. Depending on the loan to value ratio, refinancing can benefit homeowners greatly by leading to a decreased interest rate.

On the other hand, there are a few trade-offs to consider when looking into refinancing as an option. Refinancing will typically restart the time frame for the mortgage, and could result in a longer amount of time for the loan to be paid off and consequently could result in more interest paid over time, despite the lower interest rate. Refinancing will also result in closing costs, including appraisal fees and more. These will vary based on your lender; although the costs associated with refinancing are typically higher than a recast mortgage. Check out more information on refinancing to determine whether or not this strategy will be right for you.

Mortgage Recast Pros And Cons

There are numerous pros to a recast mortgage, all of which may be appealing to homeowners (particularly as they approach retirement). Here are a few of the benefits that may make a mortgage recast worth considering:

  • Lower Mortgage Payments: By making extra payments and recasting your mortgage, you can decrease your minimum payment moving forward. This is great for homeowners looking to use that extra money to invest or add to their savings. The timeframe of the original mortgage will remain the same, meaning you do not have to add time on to your loan.
  • Simplicity: As you look into how to recast a mortgage, you may notice it is often much simpler when compared to refinancing a mortgage. Homeowners often need to meet eligibility requirements and meet with a lender in order to do so. The simplicity involved is great for homeowners looking to change the terms of their mortgage without having to re-qualify for a loan.
  • Keep Your Interest Rate: Recasting a mortgage involves using the existing loan balance and the time frame left on the mortgage, and therefore will not change the interest rate. For homeowners with a favorable interest rate, a mortgage recast represents the opportunity to benefit from lower mortgage payments while keeping the same interest rate.

While there are numerous benefits to recasting a mortgage, the process can also have a few cons that homeowners should be aware of. Mind due diligence and consider the following factors before deciding on a recast mortgage:

  • Higher Mortgage Payments: It is possible for a mortgage recast to actually increase your monthly payments. This can occur in situations when homeowners make low monthly mortgage payments and are required by lenders to recast the mortgage. While uncommon, these situations can and do occur.
  • Fees: There are fees involved in recasting a mortgage. These will vary depending on your lender, but homeowners should expect to pay anywhere from $0 to $500. While the fee may be small, it is important to weigh the benefits of a lower payment when considering recasting a mortgage.
  • Minimum Payments: Many lenders will require a minimum lump-sum payment in order to qualify for a mortgage recast. If you have been making extra mortgage payments over time, you may not be affected by this. However, if a lump sum is necessary, homeowners should pay careful attention to how this will affect their finances.

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Summary

A mortgage recast can be a great opportunity for homeowners looking to decrease their monthly mortgage payments. Particularly as homeowners approach retirement, the opportunity to have a little extra money each month may be beneficial. Remember, even if you speed up your mortgage payments or contribute a lump sum to your loan, you are not required to change the terms of your original mortgage. Homeowners should do research in order to find what will work best for their situation. A mortgage recast may be helpful for some, but it is certainly not a one-size-fits-all option.

Are you deciding to move forward with a mortgage recast? Share your experience in the comments below.

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