What Is the Mortgage Loan Recast?
Mortgage loan recast, also known as mortgage recasting, is a strategy that allows you to reduce your monthly payments without changing your mortgage terms. It is a useful option for those who prefer their mortgage interest rate but would like to keep part of their monthly budget for themselves. This solution works well when you are planning to live in this house long-term and want to apply your monthly cash flow to other matters.
This option is available if you have a big amount of cash that you are ready to put toward your principal. Basically, you invest a substantial sum in your house, and the lender adjusts your current monthly payments according to the new, reduced balance. For instance, you received a windfall and want to use it to make the monthly mortgage payments lower without starting the mortgage from scratch as you would do with refinancing.
As a result, the reduced balance is spread to the rest of the period, and your monthly payments are lower. The payoff date and interest rate remain the same.
How Does It Work?
Basically, you provide an extra payment on top of your normal monthly one. The amount usually varies by lender, but according to our experience, it can be around 10% of the remaining balance or at least $5,000.
Not all lenders offer this service, so we strongly recommend confirmation before making lump-sum payments. You can also be charged a processing fee to recast, but the amount is much smaller than recasting itself.
After this, lenders recalculate the monthly payment according to the new balance. Recalculation means they spread the new balance over the same number of months as were agreed originally. The existing mortgage and interest rates remain unchanged, but monthly payments will be lower.
Advantages and Drawbacks of Mortgage Recasting
Advantages
Well, the obvious one is that your monthly payments are getting lower. With one payment, you decrease your debt and decrease the amount you need to pay without extending your loan or getting worse rates.
If refinancing usually requires an extra credit check, there is no need when you request a mortgage recast. Your loan is the same, so there is no need for one more credit check.
If refinancing requires covering thousands of dollars for appraisal fees, closing costs, and other charges, recasting only needs a few hundred.
Disadvantages
You will need a serious amount of cash to make recasting work. The lump sum can be from $5,000 to $10,000, which is not an easy task for every homeowner.
This option will not help those who want to pay off a mortgage faster, as it keeps the original terms and decreases only monthly payments. For faster payoffs, you will have to make additional principal payments.
Refinancing is available for conventional loans. But borrowers of USDA loans, VA loans, or FHA loans may not be able to use this option, so it is better to confirm with the lender and maybe look for alternatives.
What Do I Need to Recast?
The requirements and eligibility for mortgage recasting are quite simple, but it is important to be aware of these nuances. For instance, most lenders agree to recast only conventional loans, so if you have a government-backed mortgage like USDA, VA, or FHA, you will have to look for other opportunities to lower payments.
It is better to have a good payment history without any late payments; otherwise, a lender may decide to decline your request for a recast. Also, most lenders require a minimum payment of $5,000, but some require 10% of the remaining debt or more.
Some lenders expect a loan to be a few months old before making it available for recasting. So, to avoid financial instability, lenders don’t allow recasting right after closing.
How Can LBC Mortgage Assist With Recasting?
LBC Mortgage works hard to ensure our clients are equipped with all required information to match their goals, so our experts are always ready to evaluate whether mortgage recasting is the right option for you. We will guide you through the entire process and help you choose the most beneficial strategy.
Working with a large network of lenders, we can confirm whether your current lender allows recasting and explain eligibility requirements, such as minimum lump-sum amounts or administrative fees. We can help coordinate with the lender during the recast request submission to ensure re-amortization goes smoothly. Also, a professional comparison of alternatives helps find out if this is the most beneficial option available for you now.
Free Up Money For Your Monthly Budget With Recasting
As you can see, recasting is a useful opportunity to free up some money from your monthly budget. It is less complex than refinancing, but it has its own difficulties, like a need to pay a significant amount of money at first. So, if you consider recasting as a solution to lower monthly payments without changing interest rates or other loan terms, check with your lender and see if your budget allows paying extra. At LBC Mortgage, we are always ready to assist you with choosing the best mortgage solutions for your current financial situation, so don’t hesitate to contact us.