JUMP TO Section Chevron icon It indicates an expandable section or menu, or sometimes previous / next navigation options.- What is a mortgage recast?
- How it works
- Benefits
- Eligibility and requirements
- The process
- Considerations before recasting
- FAQs
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- A mortgage recast lets you pay off a large chunk of your mortgage at once and have your loan reamortized, resulting in a lower monthly payment.
- You'll need to make a substantial payment to qualify for a recast. Lenders may require as little as $5,000 or more than $25,000.
- Recasts aren't available on government-backed mortgages.
If you have extra money that you'd like to put toward paying off your house, doing so through what's called a recast can help you save money each month without having to go through the hassle of refinancing.
But there are limits on your ability to recast your mortgage, and those with certain loan types or little equity might not have the option. Here's what to know about mortgage recasting and how to make it happen.
What is a mortgage recast?
Recasting and refinancing are both strategies for lowering monthly mortgage payments, and though they might sound similar, the two are actually very different. Here's how the two differ.
Definition and how it differs from refinancing
A mortgage recast happens when a borrower makes one large, lump sum payment toward their remaining mortgage balance and the lender reamortizes the loan, calculating a new monthly payment based on the now-lower balance.
Refinancing, on the other hand, is a complete replacement of your mortgage loan. With this strategy, you can only lower your monthly payment if you get a lower interest rate or if you refinance into a longer loan term (for example, if you have 25 years left on your current mortgage and you refinance into a new 30-year term). Keep in mind that the longer it takes to pay off your mortgage, the more you'll pay in interest in the long run.
How does mortgage recasting work?
Mortgage recasting requires an upfront payment and a little reorganization by your lender. Here's what the process looks like:
The process of adjusting your loan balance and payments
When you request a mortgage recast, you'll use the funds you allocated for it to pay off a chunk of your mortgage principal.
Your lender or servicer then takes that new balance and recalculates how much you need to pay each month to fully pay it off by the end of your loan term. This amount becomes your new monthly payment and replaces your old one.
Benefits of mortgage recasting
There are three major benefits to recasting: lower monthly payments, reduced interest costs, and an overall easy process, particularly compared to refinancing.
Lower monthly payments
Recasting reduces the total balance due on your mortgage and then spreads that smaller balance out over the remaining months in your loan term. This can significantly reduce your payment, in many cases.
Here's an example: Say you take out a $200,000 30-year loan with a 5% interest rate. This would give you a $1,074 monthly payment. In year five of your loan, when your loan balance has been whittled down to about $184,000, you decide to recast your mortgage. You put an extra $25,000 toward your loan, bringing it down to $159,000. Your lender then spreads that new balance out over the remaining 25 years of your loan term, giving you a new monthly payment of $929.
Reduced interest costs over the loan term
Interest is charged based on the total balance of your mortgage loan, so the higher your balance is, the more interest you'll pay.
Since recasting helps reduce your loan balance — often by quite a bit — it can reduce the total interest you pay over the long haul, too. In the above example, you'd pay $186,511 in interest without recasting. With the recast, your total interest costs would drop to $167,923 — saving you over $17,000.
No extensive credit checks or appraisals required
Refinancing costs money, and you'll likely need to go through a credit check and get a new appraisal to get approved. There will also be a full application to fill out, as well as reams of paperwork and documentation.
Recasting, however, won't require you to jump through all these hoops. There may be a small fee for the service, but lenders usually won't ask for an appraisal or credit check to process it.
Eligibility and requirements
Recasting isn't as complicated as refinancing, but you will need to meet certain requirements. These include:
Lump sum payment towards the principal
If you want to recast your mortgage, you'll need to find out if you have enough money to do so. According to Shmuel Shayowitz, president and chief lending officer at Approved Funding, servicing companies typically want principal reduction amounts to be "substantial," and may require borrowers to pay $25,000 or more toward their mortgage balance if they want to do a recast.
Some lenders or servicers may not have a minimum principal reduction requirement, while others will allow as little as $5,000. It can vary widely, so be sure to check with your lender for the minimum you'll need to recast your mortgage.
Lender-specific criteria for recasting
Mortgage request eligibility criteria can vary by lender. Some may require that you have a certain amount of equity already in your home, and you'll likely need to be current on your mortgage, with no history of late or missed payments, too.
You can reach out to your lender to find out if it offers recasts and what its requirements are. You'll also need to make sure the mortgage you have allows recasts, because not all types of mortgages do. Government-backed mortgages, such as FHA, VA, and USDA loans, don't allow recasts.
The process of recasting a mortgage
The mortgage recasting process is fairly simple. If you're interested in recasting your mortgage, you'll need to:
Contact your lender to request a recast
The first step is to call up your lender or loan servicer and ask if they offer recasting and, if so, what the fees are for the service. If the fee is something you're comfortable with, you can request the lender start the recasting process right away.
Make the lump sum payment
Next, you'll make the payment toward your loan balance. This is usually done via wire transfer from a bank account to your lender or servicer. You may be able to do this using a cashier's check as well.
Adjusting the amortization schedule
Last, the lender or servicer will reamortize your loan. Amortization is a complex-sounding word that just refers to the paying off of the mortgage over a set amount of time.
Once you've made your payment, your balance will decrease, and your lender will spread that new balance out over the remaining term of your loan. This results in a new monthly payment.
Considerations before recasting
Recasting can be a smart financial strategy for homeowners, but it's not right for everyone. Here's what to do before requesting a recast of your mortgage loan.
Assessing financial goals and current mortgage rates
To start, determine what your new monthly payment would be after recasting your mortgage. You can do this using an online amortization calculator or reach out to your lender.
Is the new payment low enough to relieve financial pressure or free up the cash flow you need? If so, it may be worth recasting.
Make sure you consider other alternatives though, too. For example, if you have a large chunk of money available, tying it up in your home's equity might not be your best option — particularly if you're looking to make big returns. In this scenario, you might consider whether that money could do more for you in your retirement savings or a brokerage account.
You should also look at current mortgage rates, too. When mortgage rates are low, refinancing your mortgage could be the better option, allowing you to lower your monthly payment and your long-term interest costs considerably. (If rates are high, though, and you want to keep your current rate, a recast is likely the better choice.)
Understanding lender fees and potential limitations
Always consider lender fees when weighing a recast. According to Shayowitz, lenders will typically charge a fee — usually somewhere between $150 and $250 — for this service. You'll need to pay this upfront along with your lump sum payment.
Finally, know that not all lenders offer recasts. And, even if you have a loan and lender that allows recasting, there are often steep payment requirements you'll need to meet. Keep in mind how making that payment will impact your savings and ability to handle an emergency expense.
FAQs
Will a mortgage recast affect my interest rate? Chevron icon It indicates an expandable section or menu, or sometimes previous / next navigation options.No, a mortgage recast does not change your interest rate. It lowers your principal balance and allows your lender to spread that new balance out over the remaining months of your term. This lowers your monthly payments.
Is there a fee associated with mortgage recasting? Chevron icon It indicates an expandable section or menu, or sometimes previous / next navigation options.Yes, lenders typically charge a fee for recasting a mortgage, but it is generally much lower than the closing costs associated with refinancing.
How much do I need to pay towards my principal to qualify for a recast? Chevron icon It indicates an expandable section or menu, or sometimes previous / next navigation options.The required lump sum payment varies by lender, but it often ranges from $5,000 to $25,000 or more.
Can all types of mortgages be recast? Chevron icon It indicates an expandable section or menu, or sometimes previous / next navigation options.Not all mortgages are eligible for recasting. FHA, VA, and USDA loans don't allow for recasts, and some lenders don't offer them either.
How quickly will I see changes to my monthly payments after a recast? Chevron icon It indicates an expandable section or menu, or sometimes previous / next navigation options.Changes to your monthly payments typically take effect within one to two billing cycles after the recast is processed.
What is the difference between recasting and refinancing? Chevron icon It indicates an expandable section or menu, or sometimes previous / next navigation options.Recasting reduces your principal balance and then spreads it out over the remaining months of your loan. Refinancing completely replaces your current mortgage with a new one. You'll get a new term and interest rate when refinancing.
How do lump sum payments and loan amortization work in mortgage recasting? Chevron icon It indicates an expandable section or menu, or sometimes previous / next navigation options.By making a lump sum payment, you lower your loan's principal balance. Then lender then reamortizes your loan, which lowers your monthly payment amount.
Molly Grace Mortgage Reporter Molly Grace is a mortgage reporter for Business Insider with over six years of experience writing about mortgages and homeownership. ExperienceIn addition to her daily mortgage rate coverage, Molly also writes mortgage lender reviews and educational articles on homebuying and analyzes data and economic trends to give readers actionable and up-to-date information about the housing market.She also tracks affordable mortgage and down payment assistance programs offered throughout the country to keep her readers informed of homebuyer programs available to them. Before Business Insider, Molly was a blog writer for Rocket Companies and helped to create Rocket Mortgage’s Shorty Award-winning podcast Home. Made.Molly is passionate about covering personal finance topics with empathy. Her goal is to make homebuying knowledge more accessible, especially for groups that may think homeownership is out of reach. ExpertiseMolly is an expert in the following topics:- Mortgages and mortgage lenders
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Aly J. Yale Aly J. Yale is a writer and editor with more than 10 years of experience covering personal finance topics including mortgages and real estate. She contributes to Personal Finance Insider’s mortgages and loans coverage.ExperienceAly began her journalism career as reporter, and later an editor, for several neighborhood sections of the Dallas Morning News.Her work has been published in several national publications, including Bankrate, CBS, Forbes, Fortune, Money, Newsweek, US News and World Report, the Wall Street Journal, and Yahoo Finance. She’s also contributed to a variety of mortgage and real-estate publications, such as The Balance, Builder Magazine, Housingwire, MReport, and The Mortgage Reports. Her favorite personal finance tip is to schedule regular check-ins to make sure your credit cards, savings accounts, and other financial vehicles still align with your budget and financial goals. She is a member of the National Association of Real Estate Editors (NAREE).ExpertiseAly’s areas of personal finance expertise include:- Mortgages
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