Understanding Mortgage Recasting: How It Differs from Refinancing

If you're a homeowner looking to reduce your monthly mortgage payments, you've probably heard of refinancing. But have you considered mortgage recasting? Let’s dive into what a loan recast is and how it differs from refinancing.

What is a Loan Recast?

A mortgage recast, also known as re-amortization, happens when you make a large payment toward your mortgage principal. Your lender then recalculates your monthly payments based on the new, lower balance. The best part? You keep your existing interest rate and loan terms, which can make this an attractive option for many homeowners.

When Should You Consider Recasting?

Imagine you’ve sold a second home and have a hefty chunk of cash. You can use that money to pay down your current mortgage. For example, if you have a $500,000 loan and you receive $350,000 from the sale, you might decide to put $300,000 toward your mortgage. After paying a small fee, your loan balance drops to $200,000, and your monthly payments decrease accordingly. However, it’s important to note that some loans, like FHA, VA, or other government-backed loans, cannot be recast.

How Does Recasting Differ from Refinancing?

Key Differences:

1. Interest Rates and Terms: When you refinance, you replace your current loan with a new one, often to secure a lower interest rate or different loan terms. In contrast, recasting keeps your existing rate and terms.
2. Costs: Refinancing typically involves closing costs and fees, while recasting usually requires only a small fee.
3. Loan Types: Not all loans are eligible for recasting. Government-backed loans like FHA and VA loans often do not qualify 

Benefits of Recasting:

• Lower Monthly Payments: By reducing the principal balance, your monthly payments go down.
• Cost-Effective: With fewer fees compared to refinancing, recasting can be a more economical option.
• Simplicity: The process is straightforward since you keep your existing loan terms.

Conclusion

If you come into some extra cash and want to lower your mortgage payments without changing your loan terms, a recast might be the perfect solution. Always consult with your lender to see if this option is available and suitable for your specific situation.

#TeamBreezyStreet