Want to lower your monthly mortgage payment without the hassle of a refinance? Then you may want to consider a mortgage recast. According to Forbes, Mortgage recasting is one of the top five mortgage trends you’ll see in 2020. Recasting your mortgage can lower your monthly mortgage payment without getting a new loan. And when you recast a mortgage, you save money on the remaining life of the loan.
Recasting a mortgage is an easy, hassle-free way to free up cash flow. This complete guide to recast a mortgage will walk you through how mortgage recasting works, its benefits, and help you decide if it is a better option than refinancing your home mortgage.
What is Mortgage Recasting?
A mortgage recast is a recalculation of the balance owed on a home mortgage. A lender takes an existing loan and factors in a new large sum payment plus the principal left on the loan to determine a new monthly payment for the existing loan.
A Mortgage recast is also sometimes called a reamortization. It requires an additional payment but does not change the interest rate or duration of the loan. If you are looking to get a lower interest rate, you will need to refinance your loan.
Who Qualifies for a Mortgage Recast?
While it sounds like a simplified solution to refinancing your home loan, there are some limitations that may exclude certain types of loans from eligibility. For example, any government-backed mortgage program like a USDA loan or a VA loan may not be eligible.
Even if you have a conventional loan, your lender may not offer loan recasting. If that’s the case, you’ll need to refinance the loan which gives you an opportunity to change lenders if you need to. And, even when your lender does allow a recast, there are typically some criteria to meet before you get the green light.
For starters, you will need to meet the lender’s minimum principal payoff before you can request a recasting. This amount will vary by lender, with amounts of $10,000 or 10% of the loan principle being the most common. You may also need to make two or more consecutive monthly payments and pay a small fee.
Even though there is a fee involved, it is generally much less expensive than the closing costs on a refinance. Even better, there is no limit to the number of times that you can recast a loan. If your cash flow allows for small influxes of cash dispersed throughout the year, you can make a lump sum additional payment and then ask for a recast each time.
How Mortgage Recasting Works
When a homeowner wishes to recast their mortgage, they:
- Contact their lender about the recast. Mares Mortgage can help you with your recast.
- Pay a small recast fee and an additional lump-sum payment. Different lenders require a minimum amount for these lump-sum payments, so check with your lender. If you don’t put down a big enough lump-sum, then your monthly payment may not be reduced by much.
- Next, the lender resets the loan terms based on the new balance minus the lump-sum payment for the remaining mortgage term. Sometimes you can extend the term, but this isn’t recommended because it adds more interest to the loan amount, which doesn’t save you money in the long run.
Recasting is a pretty straightforward process without the need to reapply and close on a new mortgage. But if you don’t put down a big enough lump-sum payment, the mortgage recast may not help you in the long run.
Mare Mortgage can help you recast your FHA, Conventional or Jumbo Loan. Mares Mortgage’s team of experts will help find the best solution to lower your monthly loan payment.
Related Link: How to Get Out of a Mortgage
What Are The Pros and Cons of Recasting a Mortgage?
While a recast seems like a no brainer for lowering your monthly payment and Debt to Income (DTI) percentage, there are some pros and cons you should seriously consider.
Pros
The pros of recasting a mortgage include:
- You don’t have to requalify for the loan.
- Reduced your monthly mortgage payment.
- It is a safe investment for your money.
- Lower your Debt to Income (DTI) percentage.
- Keep your same interest rate if you locked in at a reasonable rate.
- Keep your same loan terms so that amortization is more favorable.
- Pay less interest on the life of the loan.
Cons
Some cons to consider when recasting a mortgage loan:
- Requires a large lump-sum payment to reduce your monthly mortgage payment. You’ll want to pay more than the minimum to maximize the monthly savings.
- Remain locked into your original interest rate, if at a higher rate.
- Pay more interest if you extend your loan term.
How to Calculate a Loan Payment When You Recast a Mortgage?
A mortgage recast recalculates your monthly loan payment based on:
- Debt amount: Remaining principal on the loan. This is where paying a large lump sum will dramatically reduce your monthly payment.
- Interest rate: A recast will use the original loan interest rate.
- Loan Terms: The number of years remaining on the original loan. Some lenders do allow you to extend the loan terms.
Your lender will amortize your loan based on these factors to create a new monthly payment. It typically takes 45-60 to for the lender to process your request. Homeowners should continue making their loan payments until they have been notified of a change.
Let’s take a look at one example:
A 30 year fixed mortgage with a $200K principle balance financed at 4.99%. Shortly after signing the papers, the homeowner receives a windfall and puts $40K towards the mortgage. If they do nothing, they will simply be ahead of schedule and committed to the same payment amount. However, if they are interested in using that windfall to lower their monthly payment, they can request a recast. This will save the homeowner about $200 per month on their monthly mortgage payment and an additional $45K on interest over the life of the loan.
A mortgage recast can be a good way to save money on your mortgage when you are able to make a lump-sum payment, especially when interest rates are currently higher than the rate locked in on your existing loan.
Talk to one of our team members at Mare’s Mortgage to help you decide if recasting is the right step for your financial future. Our “open door” customer focus makes us a trusted financial resource in the Orange County area.
What to Consider When Recasting a Mortgage
Before recasting your mortgage, you may want to consider:
- Does your lender even offer mortgage recasting?
- Do you have enough saved for the minimum lump-sum payment?
- After running the numbers, does a recast lower your monthly mortgage payment enough to go through the process?
- Will you actually save money on the interest of the loan?
- Are mortgage interest rates lower than your locked-in rate?
You’re going to want to run the numbers to see if this makes sense.
Mortgage recasting vs. Refinancing: What’s The Difference?
While mortgage recasting leverages your existing loan, a refinance is a new loan with a new interest rate and loan terms. If interest rates are lower than your current locked rate, you may want to refinance instead of recast your mortgage.
While a refinance means requalifying and closing costs, lowering your interest rate should offset these costs. If you want to reduce your loan term to a 15 year vs. a 30-year loan, you’ll want to refinance. Refinancing also doesn’t require a lump sum payment in addition to the closing cost fees.
Related Link: Reasons to Refinance Your Home
How Can We Help?
If you want to lower your monthly mortgage payment but can’t decide whether to refinance or recast, call 949-489-8300 to talk to one of our team members who can help you determine which option is best for you and your loan.
As the #1 trusted mortgage lender in Orange County, California, Mares Mortgage offers several tools to assist you in the mortgage application process. If refinancing is your best option, we can help you get a pre-qualification certificate within minutes.
Closing Thoughts
If you’re happy with your current interest rate on your loan and have savings that you can put toward your mortgage, you may want to recast your mortgage. Recasting your mortgage is a fast and easy way to lower your monthly mortgage payment and lower your DTI percentage.
If you don’t have a large sum to put toward your principal but still want to lower your monthly payment, you may want to consider refinancing your home mortgage. Refinancing at a lower interest rate will reduce your payment and the amount of interest you own on your loan. Both options are great ways to reduce your mortgage debt.
Centered on quality customer satisfaction, Mares Mortgage can help you recast a mortgage or refinance your loan to lock in a better interest rate. Contact us to get started on lowering your monthly mortgage payment.
Related Link: Questions to Ask a Mortgage Lender