Mortgage Recasting: What Is It And How Can It Help?

As a homeowner, you know your mortgage is an investment you can modify over the years to meet your financial needs. You’re probably familiar with refinancing, but did you know “recasting” is a possible way to lower your monthly payments – but keep your same rate and term? Let’s take a look.  

What Is Mortgage Recasting?  

To recast your mortgage means to make a lump-sum payment toward your loan’s principalThe amount of money that you borrow from a lender. The interest is the cost of borrowing that money.principalThe amount of money that you borrow from a lender. The interest is the cost of borrowing that money. balance. Your lender will then “re-amortize” (recalculate) your new, lower monthly payments for the remainder of your term based on the new, lower balance. 

Unlike a refinance, which is an entirely new loan that requires application, approval, and closing costs, with a recast, you simply request one from your servicer. But there are some things to keep in mind. 

How Recasting Works 

 When you contact your loan servicer, be aware that recasting could mean fees and a minimum lump sum amount. Also, recasting is typically only for Conventional loans.  

After you review and sign your recasting agreement, you’ll make a one-time lump sum payment toward your mortgage balance. Upon confirmation of the payment, your servicer will re-amortize the remaining loan balance. Your payment will go down based on your lump sum payment amount, without affecting the term or interest rate. 

Expert Tip

Recasting might be an option if you cannot qualify for a refinance due to credit issues. 

While the time recasting takes varies from servicer to servicer, plan on 45-60 days for the changes to take effect and continue to make your original monthly payments until otherwise notified. 

Recasting Example 

Let’s say you have an original loan amount of $250,000 at 4% for 30 years. The principal-and-interest portion of your monthly payment is $1,193.54. 

After five years, you win the lottery (go you!) and want to make a lump sum payment of $51,000 toward your mortgage balance, and you will only owe $175,000. You could...  

• Continue paying $1,193.54 a month and pay the loan off faster. 

• Or you can request a recast, which will keep the rate and term but divide the new balance by the number of months left for a lower monthly payment of $923.71. 

Even though you recast your loan through your servicer, Atlantic Bay is always here if you have questions about your mortgage. Happy recasting!