Recasting mortgage payments is a little-known gem when it comes to homeowner finances. It’s often viewed as a method to lower monthly payments without extending the length of your loan term. But what exactly is mortgage recasting? Are there any disadvantages to it? What about my interest rates? Will my overall loan balance increase or decrease?
Here’s a quick guide to understanding mortgage recasting and whether it’s right for you:
What is a mortgage recast?
When a homeowner recasts their mortgage, they pay off a lump sum of their current loan balance to redo the amortization of their monthly mortgage payments. When their monthly payments are put up to be amortized again, it simply breaks down the remaining balance of the loan - after the lump sum payment - into more manageable mortgage payments.
The loan itself doesn’t receive any special treatment like new loan repayment terms or interest rate adjustment. It simply breaks the remainder of the loan down into new monthly payments, while everything else stays the same.
Are there disadvantages to a mortgage recast?
As with most financing or loan options, there are a few drawbacks. The biggest one is producing the lump sum of cash to qualify for and cover recasting your mortgage payments. This requirement is typically set by your lender, who will also charge a small fee to recast the mortgage balance.
Apart from needing a large sum of cash, your interest rate is likely to stay the same. This can be both a pro and a con, depending on your mortgage’s interest rate.
If you were hoping to stretch out your payments for a little longer, and possibly lower them further, recasting mortgage payments may not be for you. When a mortgage is recast, the loan repayment term stays the same, and the amount of the monthly payment is directly related to the lump sum payment.
What about my principal balance?
Your principal balance will decrease by the lump sum payment amount. For example, if you have approximately $175,000 left on your principal balance, and you pay $25,000 for your recasting, your principal balance will decrease to $150,000. Your monthly payment will then come from your new principal balance over the remaining life of the loan.
Recasting mortgage balances is a great way to save a little extra cash over the rest of your loan’s life. However, it’s best to discuss your financial situation with your mortgage lender to ensure they offer mortgage recasting, since many providers may not.
About the Author
Carolyn Andrews
Carolyn Andrews has over 30 years licensed Brokerage experience in both California and Colorado. Born in England, Carolyn moved to California in 1980, then relocated to Denver, Colorado in 1991. Carolyn has also received recognition for Top Sales at RE/MAX Alliance Aurora in 2007-2008 and is a member of the RE/MAX Hall of Fame & Chairman’s Club, as well as a recipient of the ReMax Lifetime Achievement Award. Carolyn has sold over 2000 homes personally in her career. Carolyn has been actively involved in many aspects of the Real Estate business including investment property, luxury homes, mountain resort property, skiin/ski out, REO/default management, loss mitigation, valuations, and disposition. She has been a speaker and panelist at several conferences and has been consulted on many occasions by various organizations in the REO/financial industries for her expertise and served on many boards. She has attended numerous ongoing classes to stay abreast of changes in the ever-evolving Real Estate industry. She is the prior State Director for Colorado for VAREP(Veterans Association of Real Estate Professionals). She is a member of 3 boards of Realtors including Metro Denver, Colorado Springs and Summit County mountain areas. She heads up The Andrews Group and is or has been an active member of NAR, CAR,REOMAC, CIPS, CRS, AREAA, NAPW, NAHREP, and is an original member of the ELITEReal Estate network. She was ranked #1 for most homes sold in Denver 2007 by Denver Board of Realtors, #2 for 2008, and #2 for 2009, #5 in 2010 and #4 in 2011 and has been consistently in the top 10 ever since. Carolyn Andrews has been a top rated Endorsed Local Provider for the Dave Ramsey Organization and also a Top Producing agent for 2018 for the Homelight Company.
