How to Recast Your Mortgage Loan

For many homeowners, the idea of paying off a mortgage faster while potentially reducing monthly payments is highly appealing. Recasting a mortgage loan is one way to achieve this. Unlike refinancing, recasting doesn't involve taking out a new loan, which can make it a simpler and more cost-effective option. In this blog post, we'll delve into what mortgage recasting is, how it works, the benefits, and the steps involved.

What is Mortgage Recasting?

Mortgage recasting, also known as re-amortization, is the process of making a large, lump-sum payment toward the principal balance of your mortgage, after which your lender recalculates your monthly payments based on the new, lower balance. This can result in lower monthly payments while keeping the same interest rate and loan term.

How Does Recasting a Mortgage Work?

Here's a step-by-step breakdown of how mortgage recasting works:

1. Make a Lump-Sum Payment: Homeowners typically need to make a substantial payment toward the principal of the loan. The amount required can vary by lender but is usually around $5,000 or more.

2. Request Recasting: After making the lump-sum payment, the homeowner requests the lender to recast the mortgage. This request may come with a fee, usually between $200 and $500.

3. Lender Recalculates Payments: The lender will then recalculate your monthly payments based on the new, lower principal balance while keeping your existing interest rate and remaining loan term unchanged.

Benefits of Recasting a Mortgage

Recasting a mortgage offers several benefits:

1. Lower Monthly Payments: By reducing the principal balance, your monthly payments will decrease, making it easier to manage your finances.

2. Save on Interest: With a lower principal balance, the total amount of interest paid over the life of the loan will also decrease, potentially saving you thousands of dollars.

3. No Credit Check Needed: Unlike refinancing, recasting does not require a credit check, making it accessible to more homeowners.

4. Keep Existing Terms: Your existing interest rate and loan term remain unchanged, which is beneficial if you have a favorable rate.

Steps to Recast Your Mortgage Loan

If you're considering recasting your mortgage, follow these steps:

1. Check Eligibility: Not all loans are eligible for recasting. Typically, conventional loans are eligible, while government-backed loans like FHA and VA loans may not be. Contact your lender to confirm eligibility.

2. Save Up for the Lump Sum: Accumulate the necessary lump-sum amount. This could come from savings, a bonus, or proceeds from the sale of an asset.

3. Contact Your Lender: Inform your lender of your intention to recast your mortgage and inquire about any fees and specific requirements.

4. Make the Lump-Sum Payment: Transfer the lump-sum payment to your lender as instructed.

5. Submit a Recast Request: Officially request the recast from your lender and pay any associated fees.

6. Receive Confirmation: Your lender will provide confirmation of the new, lower monthly payments and updated amortization schedule.

Is Recasting Right for You?

Recasting can be an excellent option for homeowners who have access to a substantial amount of cash and want to lower their monthly mortgage payments without changing the loan's interest rate or term. However, it's not suitable for everyone. For instance, if you need to access the equity in your home, refinancing might be a better option.

Mortgage recasting is a valuable tool for homeowners looking to reduce their monthly payments and save on interest without the complexities of refinancing. By understanding the process and benefits, you can make an informed decision about whether recasting is the right financial move for you. Always consult with your lender to explore your options and ensure that you're making the best choice for your financial situation.

Real estate agents are a great resource even if you are not wanting to buy or sell. They can provide valuable information on topics such as ways to potentially decrease your mortgage payments. Have questions? Don't hesitate to reach out via the "contact" tab at the top of this page.