Mortgage Recast: What It Is, How It Works
A lump-sum payment can permanently shrink your monthly mortgage bill.
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Contributing Writer Recasting your mortgage can lower the cost of your monthly mortgage payments. But even though a recast makes ongoing payments more affordable, it's not really a savings hack. For a mortgage recast, you have to make a hefty lump sum payment to adjust the amount of your principal. Here's what you should know about mortgage recasting.
What is a mortgage recast?
When you recast your mortgage, you pay your servicer a lump sum — the company may require $10,000 or more. The servicer then uses an amortization schedule to recalculate your monthly payments based on the new, lower principal amount. Because you're paying off a smaller balance over the same amount of time, your monthly payment should be lower.
What stays the same:
- Your interest rate
- Your loan term (for example, 30 years)
- Your lender and loan agreement
What changes:
- Your loan balance goes down because of the lump-sum payment
- Your monthly payment is recalculated based on that smaller balance
Mortgage amortization example
Let's say that when you bought your home, you took out a 30-year loan for $360,000 at 6% interest. Your monthly principal and interest is about $2,158. Ten years later, you receive an inheritance and decide to make a $60,000 recast payment on the remaining $300,600 balance.
Once your lender reamortizes that principal amount over the remaining 20 years at the same 6% interest rate, your monthly P&I drops.
Here’s how it looks:
| Scenario | Loan balance | Years remaining | Interest rate | Monthly principal & interest |
|---|---|---|---|---|
| Original loan (when you bought the home) | $360,000 | 30 years | 6% | ~$2,158 |
| 10 years later (before recast) | ~$300,600 | 20 years | 6% | ~$2,158 |
| After $60,000 recast payment | ~$240,600 | 20 years | 6% | ~$1,724 |
After the recast, your monthly savings will be: $434
Why not just refinance?
You might be thinking, wouldn’t refinancing lower my monthly payment? Why not just do that instead?
Unlike a mortgage refinance, you don't get a new loan when you recast. That makes a recast appealing if your current interest rate is lower than today’s rates. There are also no closing costs involved with a mortgage recast. You’ll only need to pay a small recasting fee, which generally ranges between $150 and $250.
When does a mortgage recast make sense?
A mortgage recast could be a good call if:
✅ You want to reduce your mortgage costs while keeping your current home loan.
✅ You have the cash to make a sizable principal payment.
✅ You bought a home but have not yet sold your previous one. Once your previous home sells, you can use some of the proceeds to bring down the cost of the new mortgage.
✅ You received a financial windfall from an inheritance, a bonus or an investment distribution. But before committing to using those funds for a recast, consider talking with a financial planner to weigh the benefits against other money moves you might make.
🤓 Nerdy Tip
If you need to lower your mortgage payments because you're having trouble paying your home loan, you have other options. Mortgage forbearance can help with temporary setbacks; if it's a permanent change, your lender may offer a loan modification. Reamortizing the loan amount over a longer period is one strategy that may be used to modify a loan. Mortgage recast requirements
Your lender or servicer will ask you to meet certain requirements in order to recast your loan. Some of these can vary by lender, so you'll want to inquire about what's needed.
Lump sum: Mortgage recasts come with a high price tag, so that's worth repeating. You'll have to meet a minimum requirement for principal reduction, generally in the thousands, to recast your loan.
Loan type: Government-backed loans — FHA, VA and USDA loans — are not eligible for mortgage recasts. Conventional loans can be recast. If you have a different loan type, like a jumbo loan, your servicer may set their own rules.
Equity: Your lender may also require that you have a certain amount of home equity in order to recast. Equity is the amount of your home you own outright; take the home's current value minus what's left on the mortgage to calculate equity.
Payment history: A record of on-time mortgage payments is essential, though in some cases this may be as brief as one or two payments. That's helpful if you're trying to recast the loan on a home you recently purchased.
Benefits of recasting a mortgage
There can be numerous benefits to a mortgage recast versus a refinance, though without a home sale or other source of ready cash, the lump sum payment is a major obstacle.
Lower payments: A mortgage recast brings down your monthly payments — after, of course, you make that super-sized lump sum payment.
Less paperwork: You won’t need a credit check or an appraisal to recast, making it a simpler option than refinancing.
No closing costs: While you’ll need to pay a fee to recast your mortgage, refinance closing costs can be significantly more expensive — usually 2% to 6% of the refinanced amount. Yes, you're making the lump sum payment, and that's a gigantic chunk of change, but it's going toward your loan, not to paying for an appraisal, an origination fee or the other costs associated with refinancing.
Keep your mortgage: Unlike with a refinance, you aren't getting a new loan. If you've got a low interest rate, a recast lets you retain it even if prevailing rates have gone up.
Disadvantages of recasting a mortgage
Again, besides that initial lump sum payment! Here are the cons to consider before you ask about a recast.
Not all lenders offer recasts. Most mortgage lenders will refinance your loan, but not all will do recasts. Since recasts are rarely advertised, you'll have to ask whether it's an option.
Making extra payments might be good enough. If your servicer allows you to pay excess principal, you could gradually reduce your loan amount over time instead of with a lump sum. Rather than lowering your monthly payments, you'll take months or even years off of your mortgage's term. An amortization calculator could help you compare the total interest you'd pay with a recast versus paying extra each month.
Your interest rate doesn’t change. If current rates are higher than when you bought your home, this is an advantage. But if they’re lower, or if your finances have improved enough to qualify for a better interest rate, a refinance might make more sense.
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