Mortgage recasting is a way for homeowners to lower their monthly mortgage payments without refinancing. By paying extra on the principal, you can reduce your monthly costs. This keeps your interest rate and loan term the same. It’s a smart move for those wanting to save on housing expenses or have more cash.
Key Takeaways
- Mortgage recasting involves making a lump-sum payment to reduce your loan balance and lower your monthly mortgage payments.
- Recasting can be simpler and more cost-effective than refinancing, depending on the amount of your lump-sum payment.
- Recasting allows you to keep your current interest rate and loan term, unlike a refinance which may change these terms.
- Many lenders offer mortgage recasting, but eligibility and fees may vary, so it’s important to check with your specific lender.
- Recasting can be a valuable tool for homeowners looking to reduce their monthly housing costs or free up cash flow.
Understanding Mortgage Recasting
A mortgage recast is a way for homeowners to pay off a big part of their mortgage early. By making a large payment, your loan is reworked. This means your monthly payments go down, but your interest rate and loan length stay the same.
What Is a Mortgage Recast?
A mortgage recast, or “reamortization,” means paying a big chunk of your mortgage off at once. This payment can come from a bonus, inheritance, or selling another home. After this payment, your lender will adjust your monthly payments based on the new balance. Your interest rate and loan term stay the same.
Homeowners use mortgage recasting for different reasons. Maybe they bought a new home and still own the old one, or they got a big sum of money and want to pay less each month. But, not all mortgages can be recast. This includes FHA, VA, or USDA loans. Lenders want to see a big drop in principal, often $10,000 or more, and a history of paying on time.
| Mortgage Recast | Mortgage Refinance |
|---|---|
| Retains current interest rate and loan term | Obtains a new interest rate and loan term |
| Requires a lump-sum payment towards principal | Involves applying for a new mortgage loan |
| Lowers monthly payments without extending the loan | May extend the loan term or change the loan type |
Mortgage recasting can help homeowners lower their monthly payments easily. It’s a simpler option than refinancing. By knowing how it works and who can do it, you can see if it’s right for you.
How Mortgage Recasting Works
Mortgage recasting lets homeowners pay off part of their mortgage with a big payment. This can lower their monthly payments and save money over time.
To start, you talk to your lender. You’ll pay a big sum, at least $5,000, directly to your mortgage’s principal. Then, your lender will adjust the loan, giving you a new monthly payment for the rest of the loan.
There might be a small fee, a few hundred dollars, for this service. After you pay the big sum and the process is done, you’ll start paying less each month.
This process can take a few weeks to complete after you pay. Your lender will check your payment, make sure it’s good, and update your loan papers.
| Before Recasting | After Recasting |
|---|---|
| $200,000 principal balance | $195,000 principal balance |
| $1,500 monthly payment | $1,450 new monthly payment |
By paying $5,000 upfront, the homeowner cut their monthly payment by $50. This can lead to big savings over the loan’s life.
Mortgage Recasting vs. Refinancing and Other Options
Managing your mortgage can be tricky, with options like mortgage recasting and refinancing to consider. Let’s look at how these differ and compare to paying extra on your principal.
Mortgage Recasting vs. Refinancing
Recasting and refinancing both adjust your mortgage, but they work in different ways. Recasting lets you keep your current rate and term but lowers your payments with a lump sum payment. Refinancing gets you a new loan with possibly lower rates or a shorter term.
Recasting is cheaper than refinancing, often with no closing costs. It’s great if you have a big sum to pay off your mortgage early but don’t want to change your loan’s structure. Refinancing might be better if you want a lower rate or a term that fits your financial plans.
Mortgage Recasting vs. Making Principal Payments
Another choice is paying extra on your mortgage directly. This speeds up your loan payoff and cuts down on interest over time. But, it won’t lower your monthly payment like recasting does.
Choosing between recasting, refinancing, or extra payments depends on your finances, credit score, home equity, and goals. Think about the pros and cons of each option to pick the best one for you.
“Recasting your mortgage can be a strategic move if you have a lump sum of money to put towards your loan balance, as it can lower your monthly payments without changing your interest rate or loan term.”
Qualifying for Mortgage Recasting
If you’re thinking about recasting your mortgage, know what your lender needs. You must have a conventional or jumbo mortgage. FHA, VA, and USDA loans usually don’t qualify for this process.
To be eligible, you need a good payment history. Lenders want to see no late payments recently. Also, you must pay at least $5,000 to $10,000 off your principal all at once.
There might be a fee for recasting, usually $150 to $250. This covers the lender’s costs. Always ask your lender about their rules and fees before you decide to recast.
Mortgage Recasting Eligibility Checklist
- Have a conventional mortgage or jumbo mortgage
- Maintain a clean payment history with no late payments
- Meet the lender’s minimum principal reduction requirement, typically $5,000 to $10,000
- Be prepared to pay the lender’s recasting fees, usually $150 to $250
Knowing what you need to do can help you recast your mortgage successfully. This might lower your monthly payments.
Also Read: How To Apply For A Mortgage Modification: Step By Step Process
Conclusion
Mortgage recasting can help homeowners lower their monthly payments without changing the loan term or rate. It’s often easier and cheaper than refinancing, especially if you don’t get a lower interest rate.
But, think about your financial situation, like your credit, income, and future plans, before deciding. Mortgage recasting can cut down your payments. Yet, it might not be the best choice if you need to use your home equity or could get a better deal by refinancing.
Choosing to recast your mortgage should be a careful thought process. Look at the benefits and drawbacks against your financial situation, credit, interest rates, and other options like refinancing or principal payments. This way, you can make a choice that fits your long-term financial goals.
FAQs
Q: What is a mortgage recast?
A: A mortgage recast is a loan modification that allows you to reduce your monthly mortgage payments by making a lump-sum payment towards the principal balance of your home loan, which can lower the overall mortgage balance and potentially lower your mortgage rate.
Q: How can I recast a mortgage?
A: To recast a mortgage, you typically need to contact your lender and request a mortgage recast. You will need to make a lump-sum payment toward the principal to reduce your mortgage balance. Each lender may have specific requirements for this process.
Q: What factors should I consider when I want to recast my mortgage?
A: When considering a mortgage recast, think about your current mortgage balance, the amount you can afford to pay, the lender’s requirements, and how much you want to lower your monthly mortgage payments. Additionally, evaluate if you are better off recasting or refinancing.
Q: How do I calculate my mortgage recast?
A: To calculate your mortgage recast, take your current mortgage balance, subtract the lump-sum payment you plan to make, and then recalculate the monthly payments based on the new balance, using the existing mortgage rate over the remaining loan term.
Q: Will I need to pay closing costs when I recast my mortgage?
A: Generally, mortgage recasting does not require you to pay closing costs like a refinance would. However, some lenders may have fees associated with the recasting process, so it is essential to check with your lender for any potential costs.
Q: Can I qualify for a mortgage recast if my mortgage doesn’t have a fixed-rate mortgage?
A: Yes, you can qualify for a recast regardless of whether your mortgage is a fixed-rate mortgage or not. However, the eligibility for recasting may depend on your lender’s specific policies.
Q: Is it better to recast or refinance my mortgage?
A: Choosing to recast or refinance your mortgage depends on your financial situation. If you want to lower your monthly payments without a lengthy process, recasting may be ideal. However, if you seek a lower mortgage rate, refinancing could be more beneficial.
Q: What happens to my private mortgage insurance if I recast my mortgage?
A: If you recast your mortgage and reduce your loan balance significantly, you may be able to eliminate your private mortgage insurance (PMI) if your mortgage balance falls below 80% of your home’s value, depending on your lender’s policies.
Q: How does the mortgage recasting process work?
A: The mortgage recasting process typically involves making a lump-sum payment to your lender, who will then recalculate your monthly payment based on the new mortgage balance. It’s a straightforward process that can lead to lower monthly payments without the need to refinance.
Q: Can I use a mortgage recast to reduce my monthly mortgage payments?
A: Yes, using a mortgage recast can effectively lower your monthly mortgage payments by decreasing your mortgage balance, which may also reduce the interest you pay over the life of the loan.
