What Is a Mortgage Recast?
A mortgage recast is a process (or loan recasting) where you make a large lump-sum payment toward refinancing your mortgage principal, and your lender amortizes according to the new balance. This means your lender recalculates your monthly payment based on the new, lower principal amount, but your interest payment rate and recast your loan term remain the same. Unlike refinancing, qualifying for recasting doesn’t involve taking out a new loan if you're changing the terms of your existing mortgage.
This process can be a great way to reduce your monthly payments if you have extra cash, without going through the costly and time-consuming refinancing steps.
Calculate your Mortgage Recast vs. Refinancing: What’s the Difference?
Many homeowners are familiar with refinancing, but it’s important to understand how recasting a mortgage differs from refinancing. Both options can help you save money, but they work very differently.
- Refinancing involves replacing your current mortgage with a new loan, often with different terms, a new interest rate, and potentially new closing costs. It’s a great option if you want to take advantage of lower interest rates or change your loan terms (e.g., switch from a 30-year mortgage to a 15-year mortgage).
- Recasting, on the other hand, keeps your existing loan intact. You simply make a lump-sum payment to reduce your principal, and your lender recalculates your payments. There’s no need to secure a new loan, and closing costs are much lower or nonexistent.
Recasting is typically best for homeowners who are satisfied with their current interest rate and loan terms but want to lower their monthly payments without the hassle of refinancing.
How a Recast a Mortgage Calculator Works
A mortgage recast calculator is a simple yet powerful tool that helps you estimate how much you can save by recasting your mortgage. It calculates your new monthly payment based on the lump-sum payment you plan to make, your current mortgage balance, and your interest rate.
Here’s what you’ll typically need to input into the calculator:
-
Current Mortgage Balance: This is the remaining balance of your loan on your mortgage before you make the lump-sum payment.
-
Lump-Sum Payment: The amount you plan to pay toward your mortgage extra principal payment. The larger the payment, the more you can reduce your monthly payments.
-
Interest Rate: Keep your current mortgage interest rate.
-
Remaining Loan Term: The number of years left on your mortgage.
With these inputs, the mortgage recast calculator will show you your new monthly payment and how much you can save each month after the recast.
Benefits of Using a Mortgage Recast Calculator
Using an original mortgage recast calculator has several advantages:
-
Informed Decision-Making: By calculating your potential savings, you can determine whether making a lump-sum payment is a smart financial move for your situation.
-
Lower Monthly Payments: The calculator helps you see exactly how much your monthly payments will decrease after the recast.
-
No Refinancing Costs: Recasting allows you to pay to reduce your payments without the fees and hassle of refinancing.
When to Consider a Recast Mortgage
Not every homeowner will benefit from recasting their mortgage. It’s typically most effective if:
- You’ve come into a significant amount of money (e.g., from a bonus, inheritance, or sale of an asset) and want to reduce your monthly payments.
- You’re happy with your current interest rate and loan term but want to lower your monthly mortgage payment.
- You prefer to avoid the closing costs and credit checks involved in refinancing.
However, recasting may not be available for all types of loans. For example, FHA and VA loans typically don’t offer recasting, so you’ll need to check with your lender to see if it’s an option for your specific loan balance type.
Conclusion
A mortgage recast can be a smart, low-cost way to reduce your monthly mortgage payments and pay off your home loan more efficiently. By making a lump-sum payment toward your mortgage principal, you can benefit from lower monthly payments without altering your interest rate or loan term.
Using a mortgage recast calculator is the easiest way to see how much you can save, helping you make an informed decision about whether recasting is the right option for you. If you’re looking for a way to lower your mortgage payments without the complexities of refinancing, a mortgage recast could be the solution you’ve been searching for.