Recast Your Mortgage For A Lower Payment


When most people think of casting, they imagine fly fishing, Hollywood or the setting of broken bones. They don’t think about their mortgage, or a convenient way to lower their monthly payment. This is unfortunate, as a mortgage “recast” is a viable method for homeowners to reduce their principal and interest payments each month, without the hassle of a refinance.

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Standard Option

When mortgage interest rates tumble, homeowners across the nation rush to refinance their loans and capture lower payments, usually with a significant outlay in the form of closing costs and fees. According to the U.S. Housing Market Scorecard, 16.2 million have done so since April 2009. While they save money on interest each month as a result, the expense may temporarily outweigh the benefits. It takes time to recoup closing costs, which can run as much as three to five percent of the loan amount. This makes refinancing impractical for many who already have a fairly low interest rate. The smaller the rate difference, the smaller the savings and the longer it takes to reach a balance.

Less-Advertised Option

In contrast to the popularity of refinancing, most homeowners have never heard of a mortgage recast. It involves the re-amortization of a loan after the borrower pays a lump sum towards the principal. Unlike a refinance, the rate and term of the mortgage do not change with a recast. However, the borrower achieves a lower monthly payment, because a smaller balance is amortizing over the remaining years of the loan. A recast involves lower fees than a refinance, and little paperwork. To illustrate, let’s imagine you originally signed for a $200,000 30-year fixed-rate mortgage at 4 percent. Your payment of principal and interest is $954.83 per month. If you’ve been paying for 10 years, your balance is now $157,567.92. You decide to recast your loan, putting $10,000 towards a lump sum principal payment before re-amortizing the balance (now $147,567.92) over the 20 years remaining, reducing your monthly payment to $894.23.

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Making A Recast Happen

Whether you’re able to recast your mortgage or not is up to your loan servicer. It will be easier if the company servicing your loan also owns the note. If not, they must receive approval from whoever does. You will also need to have several thousand dollars available for your lump-sum principal payment, as well as processing fees. Some confuse a mortgage recast with prepayment because of the extra money put towards the principal. However, unlike prepaying your mortgage, a recast reduces your monthly payment. It’s an especially attractive option for those who are self-employed, have poor credit, don’t want to bother with another refinance or have inherited a large sum of money that they’d rather not invest elsewhere.

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