What Is a Recast Mortgage?

Are you a homeowner looking for a way to lower your monthly mortgage payments without refinancing? If so, you could consider a recast mortgage. A recast mortgage is a unique type of mortgage that allows you to reduce your monthly payments by paying a lump sum toward your principal balance.

The goal is to lower the amount of interest paid over the life of the loan without changing the term or interest rate of the mortgage.

In this blog post, we’ll explore the ins and outs of recast mortgages and see whether it’s the right choice for you.

What is a Recast Mortgage?

A recast mortgage is a unique type of mortgage that allows you to reduce your monthly mortgage payments by making a lump sum toward the principal balance of your loan.

The payment reduces the outstanding principal balance of the loan, which in turn reduces the monthly payment amount without changing the loan term or interest rate.

Recasting your mortgage allows you to adjust your monthly payment amount to better fit your financial situation without refinancing your entire mortgage.

How Does a Recast Mortgage Differs from Other Types of Mortgages?

Recasting differs from other types of mortgages in that it doesn’t require you to refinance your entire mortgage. Instead, it allows you to adjust your monthly payment amount by making a lump sum towards the principal balance of your loan.

It differs from refinancing, which involves taking out a new loan with new terms and interest rates. Recasting your mortgage is typically faster and less expensive than refinancing, as no closing costs or fees are involved.

How Can a Recast Mortgage Benefit Homeowners?

Recasting your mortgage can benefit homeowners in several ways. First and foremost, it can help you reduce your monthly mortgage payments, which can be a massive help if you’re looking to save money. It can be especially beneficial if you’ve experienced a change in your financial situation, such as a decrease in income or an increase in expenses.

Additionally, recasting your mortgage can lower your total interest payments over the life of the loan, which can help you pay off your mortgage faster. It can save you thousands of dollars in interest charges over the life of the loan.

How Does a Recast Mortgage Work?

Recasting a mortgage involves making a lump sum payment towards the principal balance of your loan, which reduces your monthly payment amount. Here’s how it works:

1. You make a lump sum payment towards the principal balance of your loan.
2. The lender recalculates the monthly payment based on the new, lower principal balance.
3. Your monthly payment amount is reduced to reflect the insufficient principal balance.

It’s important to note that recasting doesn’t change your mortgage’s term or interest rate.

Requirements For Recasting a Mortgage

Not all mortgages are eligible for recasting, and there may be specific requirements you need to meet to qualify. Here are some standard conditions for recasting a mortgage:

1. Your mortgage must be current and in good standing.
2. You must have made a lump sum payment of at least $5,000 towards the principal balance of your loan.
3. Your lender may require you to pay a recasting fee.

It’s essential to check with your lender to see if you meet their specific requirements for recasting.

How Does Recasting Affect Monthly Payments and Total Interest Paid?

Recasting your mortgage can lower the monthly payments and reduce the total interest you pay over a lifetime loan. Here’s how it affects the monthly payments and genuine interest paid:

1. Monthly payments: Recasting your mortgage can lower your monthly payment amount by reducing the principal balance of your loan. It can be beneficial if you’re looking to lower your monthly expenses or adjust your budget.
2. Total interest paid: By reducing the principal balance of your loan, recasting your mortgage can also lower the total amount of interest you pay over a lifetime loan. It can save you thousands of dollars in interest charges.

It’s important to note that recasting your mortgage doesn’t change your interest rate or the term of your loan. It adjusts your monthly payment amount to reflect the new, lower principal balance.

Pros and Cons of a Recast Mortgage

Benefits Of a Recast Mortgage

Recasting your mortgage can offer several benefits, including:

1. Lower monthly payments: Recasting your mortgage can help you reduce your monthly payments, making it easier to manage your monthly expenses.
2. Lower total interest payments: By reducing the principal balance of your loan, recasting your mortgage can also help you save money on interest charges over the life of your loan.
3. No need to refinance: Recasting your mortgage allows you to adjust your monthly payment amount without going through the time and expense of refinancing your entire mortgage.

Drawbacks Of a Recast Mortgage

While there are many benefits to recasting your mortgage, there are also some potential drawbacks to consider, such as:

1. Limited impact on interest rate: Recasting your mortgage doesn’t change your interest rate, so if your interest rate is high, you may still be paying more than you would like in interest charges.
2. Limited flexibility: Recasting your mortgage keeps the term of your loan the same, so if you’re looking to shorten or lengthen your loan term, you’ll need to refinance instead.
3. Fees: Your lender may charge a fee for recasting your mortgage, which can add to the overall cost of the process.

Comparison Of Recast Mortgages to Other Mortgage Options

Recasting your mortgage is just one of many mortgage options available to homeowners. Here’s how it compares to other options:

1. Refinancing: It involves taking out a new loan with new terms and interest rates. While it can help you lower the monthly payments and save on interest charges, it can also be time-consuming and expensive.
2. Loan modification: It involves changing the terms of the existing mortgage to make it affordable and easy to pay back. It can include changing your interest rate or loan term. However, loan modification is typically only available to homeowners struggling to make mortgage payments.

Recasting your mortgage can be a good option if you’re looking to lower your monthly payments without refinancing your entire mortgage.

However, weighing the pros and cons carefully and considering your financial situation before deciding is essential.

To make things easier for you, here’s a comparison table of various mortgages:

Mortgage Option	Definition	Pros	Cons
Recast Mortgage	A recast mortgage allows you to make a lump sum payment towards your principal balance, which will then be recalculated to reduce your monthly mortgage payment.	Lower monthly payments, and lower interest over the life of the loan.	May have a fee to recast, but the interest rate may not change.
Refinance Mortgage	Refinancing your mortgage means taking out a new loan to pay off your existing mortgage. This can allow you to get a lower interest rate, lower monthly payments, or change the term of your loan.	Lower interest rates, lower monthly payments, and change the term of the loan.	May have closing costs, may require an appraisal, and could increase the length of your mortgage.
Home Equity Loan	A home equity loan allows you to borrow against the equity you have built up in your home.	Can be used for a variety of purposes, with lower interest rates than some other types of loans.	Requires good credit, risk of losing your home if you can’t make payments.
Home Equity Line of Credit	A home equity line of credit (HELOC) is a revolving line of credit that allows you to borrow against the equity in your home.	Can be used for a variety of purposes, only borrow what you need.	Variable interest rates require good credit, a risk of losing your home if you can’t make payments.
Adjustable-Rate Mortgage	An adjustable-rate mortgage (ARM) has an interest rate that changes periodically based on market conditions.	A lower initial interest rate can be a good option if you plan to sell the home before the rate changes.	Interest rates can increase over time, may be difficult to budget for changes in the payment.
Fixed-Rate Mortgage	A fixed-rate mortgage has an interest rate that stays the same for the life of the loan.	Consistent monthly payments, easier to budget.	Higher interest rates than some other options, may not be the best option if you plan to move in a few years.

 

Is a Recast Mortgage Right for You?

Factors To Consider When Deciding Whether to Recast a Mortgage

Before deciding to recast your mortgage, there are several factors you should consider, including:

1. Your current interest rate: If your interest rate is already low, recasting your mortgage may not significantly reduce your monthly payments.
2. Your financial situation: Recasting your mortgage can be an excellent option to reduce your monthly expenses, but there may be better choices if you struggle to make your mortgage payments.
3. Your future financial goals: Recasting your mortgage may be optional if you plan to move or refinance shortly.

Who Is a Good Candidate for A Recast Mortgage?

While recasting your mortgage can be a good option for many homeowners, it may be especially beneficial for those who:

1. Have experienced a change in their financial situation, such as a decrease in income or an increase in expenses.
2. Have a lump sum of money available to put towards the principal balance of their loan.
3. Want to reduce their monthly payments without refinancing their entire mortgage.

When Recasting a Mortgage May Not Be the Best Option?

There may be better options than recasting your mortgage for some. Here are some scenarios where it may not be the best choice:

1. You’re planning to move in the near future: If you’re planning to move soon, recasting your mortgage may not be necessary, as you’ll be paying off your mortgage in full when you sell your home.
2. You’re struggling to make your mortgage payment: If you have trouble making a monthly mortgage payment, recasting your mortgage may not be enough to help you get back on track. Consider other options, such as loan modification or refinancing.
3. You’re looking to change the term of your loan: If you’re looking to shorten or lengthen the term of your loan, there may be better options than recasting your mortgage, as it doesn’t change the term of your loan. Refinancing may be a better choice in this scenario.

Conclusion

Recast mortgages can be an excellent option for homeowners looking to lower their monthly payments without refinancing their entire mortgage.

They offer a way to adjust your monthly payment amount to better fit your financial situation without changing your mortgage’s term or interest rate.

However, as with any financial decision, it’s essential to carefully consider your situation and goals before deciding to recast your mortgage.

If you’re interested in recasting your mortgage, it’s essential to check with your lender to see if you meet their specific requirements.

Remember that there may be fees associated with recasting your mortgage, and some may have better options.

However, it’s worth considering if you meet the requirements and believe recasting your mortgage could help you achieve your financial goals.

FAQs

What is a recast mortgage?

A recast mortgage allows you to reduce your monthly mortgage payments by making a lump sum amount toward the principal balance of your loan.

How does a recast mortgage work?

Recasting a mortgage involves making a lump sum amount towards the principal balance of your loan, which reduces your monthly payment amount without changing your mortgage’s term or interest rate.

Who is eligible for a recast mortgage?

Eligibility for a recast mortgage can vary depending on the lender. However, typical requirements include having a current and in-good-standing mortgage and making a lump sum amount of at least $5,000 towards the principal balance of your loan.

What are the benefits of a recast mortgage?

Recasting your mortgage can lower the monthly payments and reduce the total interest you pay over a lifetime loan. It can also be faster and less expensive than refinancing your mortgage.

What are the potential drawbacks of a recast mortgage?

Recasting your mortgage may not significantly impact your interest rate, and it doesn’t change the term of your loan. Additionally, there may be fees associated with recasting your mortgage.

Is a recast mortgage right for everyone?

Recasting your mortgage may be a good option for homeowners looking to reduce their monthly payments without refinancing their entire mortgage. However, it’s essential to carefully consider your financial situation and goals before deciding to recast your mortgage.

How can I recast my mortgage?

You’ll need to contact your lender to recast your mortgage to see if you meet their specific requirements. You’ll then need to make a lump sum payment towards the principal balance of your loan, after which your lender will recalculate your monthly payment amount based on the new, lower principal balance.