Are you struggling to keep up with your monthly mortgage payments? Life can be unpredictable, and unexpected expenses can make it hard to keep up with your mortgage payments. But what if there was a way to reduce your monthly mortgage payment without refinancing your home? That is when mortgage recasting can help! With a mortgage recast, you can control your finances and enjoy a more manageable monthly mortgage payment. Read the article to learn more about how to recast your mortgage and what benefits you can get. 

What is a mortgage recast?

Mortgage recasting is a process that allows you to make a large payment towards the principal balance of your mortgage, which in turn lowers your monthly mortgage payments. Unlike refinancing, mortgage recasting does not change your interest rate or loan terms. Mortgage recasting is not the same as making additional principal payments toward your mortgage. While extra principal payments can help you pay off your mortgage faster, it does not lower your monthly payments. Also, pay attention, that not all mortgage programs allow recasting. For example, FHA/VA and USDA do not offer a recast option. Some lenders may also have specific requirements or limitations on how and when you can request recasting. Additionally, lenders may require a minimum lump-sum payment towards the principal, and some may limit the number of times a borrower can recast their loan. It's best to check with your lender to determine if it is possible for your situation.  Mortgage recasting is helpful for homeowners who want to lower their monthly mortgage payments but do not want to extend their loan term. As a result, homeowners can enjoy lower monthly payments without paying additional interest over the life of their loan.

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Mortgage recast example

Let's say you have a 30-year fixed-rate mortgage for $300,000 with an interest rate of 4.5%. Your monthly principal and interest payment is $1,520. After a few years of paying down your mortgage, you receive an inheritance of $50,000, which you decide to use to make a lump-sum payment toward your principal balance. Since your lender allows for mortgage recasting, you contact them to discuss the option. The lender confirms that your loan is eligible for a mortgage recast and that the lump-sum payment meets the minimum principal reduction requirement of $10,000. They provide you with the necessary paperwork and fees for the recast, which comes out to $300. After submitting the paperwork and payment, your lender re-amortizes your loan based on the new principal balance of $250,000.  The interest rate and remaining loan term remain the same, but your monthly payment is reduced to $1,267, a savings of $253 per month. With a lower monthly payment, you will have more room in your budget for other expenses. By recasting your mortgage, you've effectively lowered the total interest amount you'll pay over the life of the loan, saving you thousands of dollars in the long run.

How to recast a mortgage

1. Assess your finances 

Before considering mortgage recasting, assess your finances and determine if you have a lump sum of money to put toward your mortgage.

2. Check with your lender 

Not all lenders offer mortgage recasting, so it's important to check with your lender to see the requirements and if this option is available.

3. Make a lump sum payment 

To recast your mortgage, you'll need to make a lump sum payment towards the principal balance of your mortgage.

4. Request your mortgage payment re-calculation

After making a lump sum payment, your lender will re-calculate your mortgage payment based on the new principal balance. That will result in a lower monthly mortgage payment.

5. Consider other factors 

While a lower monthly payment may be attractive, consider other factors such as the length of your loan term and how much interest you will save over the life of your loan.

How often can you recast a mortgage?

You can recast your mortgage after the closing on a home. Typically you can do this once during the life of the loan.  The cost of a mortgage recast should be less than $500, which is lower than the cost of refinancing a mortgage. Moreover, to qualify for a mortgage recast, the principal reduction made towards the loan must be $10,000 or more. A mortgage recast can be a useful tool for homeowners looking to lower their monthly payments and reduce the overall cost of their mortgage, but it's crucial to understand the process and its implications.

Are there any downsides to mortgage recasting?

While mortgage recasting can be a helpful tool for managing your finances, there are some downsides to consider. For example, some lenders require a minimum lump sum payment, which may not be feasible for all homeowners. Additionally, mortgage recasting may not be a good option if you have a low-interest rate on your mortgage. In this case, it is more beneficial to invest this money elsewhere.

FAQs

How is mortgage recasting different from refinancing? 

Refinancing involves obtaining a new loan with a different interest rate and terms to pay off your existing mortgage. In contrast, mortgage recasting means modifying your existing loan by reducing the principal amount and recalculating the payment schedule accordingly.

What are the benefits of mortgage recasting? 

The primary benefit of mortgage recasting is a monthly mortgage payment reduction. By lowering your payments, you can free up more cash flow and increase your financial flexibility. Additionally, since you're not obtaining a new loan, you won't have to go through the time and expense of refinancing.

Is mortgage recasting available to everyone? 

No, not all lenders offer mortgage recasting, and even those that do may have specific eligibility requirements. Some lenders may require a minimum payment before allowing a recast, while others may charge a fee. 

Will mortgage recasting affect my credit score?

No, mortgage recasting should not affect your credit score. Since you're not obtaining a new loan, there won't be a hard inquiry on your credit report, which can lower your score. However, it's essential to confirm this with your lender, as some may require a credit check before allowing a recast.

Can I recast my mortgage more than once? 

It depends on your lender's policies. Some lenders may allow multiple recasts, while others have restrictions on how many times you can recast your loan. 

Conclusion

To understand if a mortgage recast is a right move for you, you should consider your goals. Do you want to decrease your monthly payments or tap into your home equity? Although there are various ways to lower your payments, it can be challenging to determine the most suitable one for your circumstances. LBC Mortgage can provide valuable insights into a mortgage recast benefits, offer alternative options for lowering your mortgage payments, and guide you through the process.  Contact us today to learn more.