Mortgage Recast vs. Mortgage Refinancing: What You Need to Know
While refinancing is the most common method used to reduce monthly mortgage payments, a mortgage recast offers less than half the fees and paperwork, while keeping the same rate and amortization schedule. For a nominal fee, most lenders (with the exception of FHA and VA) will recast your mortgage loan.
If you’ve received a bonus, inheritance or other type of windfall and would like to reduce your monthly payment by applying a portion to your mortgage, you have two options: refinance or loan recast. If your lender offers mortgage recasts, you’ll typically be required to put down a minimum of 5 percent of your principal balance.
What is a Mortgage Recast?
Recasting a loan means making an adjustment to your monthly payments based on a reduced principal loan amount and the balance of your amortization. Your rate remains the same.
Now let’s take a look at how recasting a loan after 10 years would affect principal, term, rate and payment.
Mortgage Recast Summary*:
|Original Loan ||After 10 Years of Payments||Loan Recast|
Term: 30-year fixed
Term: 30-year fixed
10% Payment: $22,453
New Principal: $202,082
Term: 20-year fixed
Benefits of Recasting a Mortgage
- When you recast your mortgage you are not resetting the 30-year loan clock, which means the majority of your payment will not be applied to interest. In effect, a loan recast avoids starting over.
- A mortgage recast does not require an appraisal.
- There is no need to pull credit.
- Recasting a loan typically costs between $250 and $500.
Disadvantages of Recasting a Mortgage
- A mortgage recast does not impact your rate, even if rates are lower than your current rate.
- While your monthly payments are reduced, your current loan term remains the same. If you want to pay down your loan faster, make 15-year monthly payments.
There are many financing options available to you. Be sure and speak with your financial adviser and a mortgage professional before recasting your loan.
*Sample rate table example provided for illustration purposes only and is not intended to provide mortgage or other financial advice specific to the circumstances of any individual and should not be relied upon in that regard. Guaranteed Rate, Inc. cannot predict where rates will be in the future.