Introducing Mortgage Recasting

John Robinson |
Categories
mortgage recasting
Financial Planning

By J.R. Robinson, Financial Planner May 2024

I am writing this article because it keeps coming up in Financial Planning reviews. Specifically, I keep coming across people who refinanced or originated mortgages in the 2020-2021 time frame and locked in the most favorable (i.e., lowest) fixed rates in American history on 15-year and 30-year mortgages. For most of these folks refinancing will never be appealing, but they wish there was a way to lower their monthly payments to free up more of their monthly cash flow for enjoying life. Enter recasting - Mortgage recasting is a strategy that allows homeowners to lower their monthly mortgage payments without refinancing their loan. The process involves making a substantial lump-sum payment toward the principal balance of your mortgage. After this payment, your lender recalculates-or "reamortizes"-your remaining loan balance over the original loan term, resulting in reduced monthly payments[1][2][3].

How Mortgage Recasting Works

  • You contact your lender to see if they offer recasting and to learn about eligibility requirements.

  • You make a lump-sum payment (often with a minimum amount set by the lender) directly toward your mortgage principal.

  • The lender recalculates your monthly payments based on the new, lower principal, but your interest rate and loan term remain unchanged[1][2][4].

Key Benefits

  • Lower Monthly Payments: The main advantage is a reduced monthly payment, which can improve cash flow.

  • Interest Savings: By lowering your principal, you pay less interest over the life of the loan[5][6].

  • No Credit Check or Appraisal: Unlike refinancing, recasting does not require a credit check or property appraisal, and fees are typically much lower[2][3][7].

  • Keep Your Current Interest Rate: If you have a favorable rate, you retain it even if market rates have risen[2][3].

Limitations and Considerations

  • Loan Type Restrictions: Not all loans are eligible; government-backed loans like FHA, VA, and USDA typically do not allow recasting[4].

  • No Access to Home Equity: The lump sum you pay is tied up in home equity, and you cannot access it without refinancing or a home equity loan[1][4].

  • Term Unchanged: Your loan term does not shorten; only your payment amount decreases[1][2].

  • Minimum Payment and Fees: Lenders may require a minimum lump-sum payment and charge a recasting fee (usually a few hundred dollars)[1][4].

In sum, mortgage recasting can be a cost-effective way to reduce your monthly payments if you come into extra cash, such as from a bonus, inheritance, or the sale of another property. However, it’s important to weigh the benefits against the limitations and confirm eligibility with your lender before proceeding[1][2][3][4].

John H. Robinson is the owner/founder of Financial Planning Hawaii and Fee-Only Planning Hawaii. He is also a co-founder of fintech software maker Nest Egg Guru and the new personal finance website NestEggPF.com.

  1. https://www.pnc.com/insights/personal-finance/borrow/what-is-mortgage-recast.html     

  2. https://www.chase.com/personal/mortgage/education/managing-your-mortgage/what-is-mortgage-recast     

  3. https://www.nerdwallet.com/article/mortgages/what-is-mortgage-recast   

  4. https://www.quickenloans.com/learn/mortgage-recast     

  5. https://www.businessinsider.com/personal-finance/mortgages/recast-mortgage 

  6. https://mortgage.myfw.com/the-benefits-of-a-mortgage-recast/ 

  7. https://www.forbes.com/advisor/mortgages/mortgage-recasting/