If you’re looking to save money on your mortgage, a common option is to refinance your loan, but you may not know about another option called Recasting.
Recasting involves a lump-sum payment that reduces your mortgage balance and leads to a lower monthly payment.
What is Recasting?
Recastinghappens when you pay a lump-sum towards your existing principal. For example, you might make a sizeable lump-sum payment which puts you well ahead of schedule on your repayment. Then your mortgagee will recalculate your monthly payments based on your lower-than-projected loan balance, resulting in a lower required monthly payment. The term of the loan and the interest rate remain the same. Also since the loan balance decrease, you also end up paying less interest over the remaining life of your loan.
There is a small administrative fee of a few hundred dollars to complete a recast.
Six MAJOR Advantages to Recasting vs Refinancing in a Market Like Today's:
1. There are no closing costs associated.
2. There is no change to your current interest rate.
3. The loan doesn't start over. (no credit checks, appraisals, etc.)
4. There is potential to eliminate Mortgage Insurance.
5. It is a much simpler process than refinancing!
6. Lower monthly payment.
Cons to Recasting:
1. Not all mortgages qualify for recasting.
2. Not offered by all mortgagees.
3. The lump-sum payment may be too high.
4. Interest rate stays the same (depending on the market this could be negative)
5. Loan term (If you have a 30 year, a recast will still be a 30 year vs refinancing to get a 15yr)
6. The process of recasting is typically more expensive than refinancing because of the required lump-sum payment - but the advantages can outweigh the disadvantages depending on your needs and preferences.
What kinds of loans qualify?
-Conventional loans and jumbo loans.
-Loans that conform to Fannie and Freddie Mac Standards.
*Government loans cannot be recast.
How to Request a Mortgage Recast:
- Review your current mortgage status - it's important to note you cannot have any late payments or be behind on your mortgage in the past 12 months.
- Contact the mortgagee directly - there are some that do not allow recasts.
- Find out how much cash you'll need - Mortgagees have recast requirements. Generally $20K-$50K but some as low as $5K. Some mortgagees may have a mandatory payment that is a flat amount or it could be a percentage of the loan balance.
- Apply for the recast - Get the application from the mortgagee.
- Make the lump-sum payment - Once approved, make the payment and pay the recast fee.
If you have questions about recasting your loan or want to learn more - reach out! We are happy to go into more detail.