Understanding Mortgage Recasting: A Smart Way to Lower Monthly Payments

Mortgage recasting is a financial strategy that can help homeowners reduce their monthly payments without the need for refinancing. Let’s break down what it is, how it works, and whether it’s the right option for you.

What Is a Mortgage Recast?

A mortgage recast, also known as a loan recast, involves making a lump-sum payment toward your mortgage’s principal balance. After this payment, your lender recalculates your monthly payments based on the reduced principal balance while keeping the original interest rate and loan term unchanged. This process results in lower monthly payments.

Unlike refinancing, recasting doesn’t require a new loan or credit checks, making it simpler and more cost-effective for many borrowers. However, not all loans qualify for recasting—government-backed loans like FHA and VA loans are typically excluded.

How Does It Work?

Here’s how the mortgage recasting process typically unfolds:

1. Contact Your Lender: Verify if your lender offers mortgage recasting and whether your loan
   qualifies.
2. Meet Eligibility Criteria: Most lenders require you to make a minimum lump-sum payment (e.g.,
   $10,000) and have a good payment history.
3. Submit a Request: Provide a written request to initiate the recasting process.
4. Make the Lump-Sum Payment: Pay the required amount toward your principal balance along
   with any applicable fees.
5. Recalculation of Payments: Your lender will reamortize the loan, resulting in lower monthly
   payments.

Benefits of Mortgage Recasting

1. Lower Monthly Payments: By reducing the principal balance, you’ll pay less each month.
2. Retain Current Interest Rate: If you have a favorable interest rate, recasting allows you to keep it.
3. Cost-Effective: Recasting fees are usually much lower than refinancing closing costs.
4. No Credit Check Required: Unlike refinancing, recasting doesn’t impact your credit score or
   require an appraisal.

Drawbacks of Mortgage Recasting

1. Lump-Sum Requirement: You need a significant amount of cash to make the initial payment.
2. No Interest Rate Reduction: If current rates are lower than your existing rate, refinancing might be a better option.
3. Not All Loans Qualify: Government-backed loans and some jumbo loans may not be eligible.
4. Loan Term Remains Unchanged: While monthly payments decrease, the overall loan term
   stays the same.
   

Mortgage Recast vs. Refinancing

Feature Mortgage Recast Refinancing

Feature	Mortgage Recast	Refinancing
New Loan Required	No	Yes
Interest Rate Changes	No	Yes
Lump-Sum Payment	Yes	No
Closing Costs	Low (hundreds of dollars)	High (2%–6% of loan amount)
Credit Check Needed	No	Yes

When Should You Consider Mortgage Recasting?

● You’ve received a large sum of money (e.g., inheritance or work bonus).
● You want to lower your monthly payments without extending your loan term or changing your
interest rate.
● You’re satisfied with your current interest rate and don’t want to refinance.

Using a Mortgage Recast Calculator

A mortgage recast calculator can help you estimate potential savings by factoring in:
● Lump-sum payment amount
● Remaining loan balance
● Current interest rate
● Loan term
For example, if you make a $20,000 lump-sum payment on a $200,000 home loan with an annual
percentage rate (APR) of 4%, your monthly payments could decrease significantly while keeping your original loan term intact.

Key Considerations Before Recasting

1. Emergency Fund: Ensure you maintain enough savings for emergencies before committing to a lump-sum payment.
2. Fine Print: Review lender-specific requirements and fees associated with recasting.
3. Alternative Options: Compare recasting with making extra principal payments or refinancing to determine the best fit for your financial goals.

FAQS

1. What makes a mortgage recast better than refinancing?

Refinancing replaces your current loan with a new one. That usually means a long process, credit checks, and high closing costs.

Recasting is different. It lets you lower your monthly payment by making a one-time lump sum toward your loan principal. Your loan stays the same—no new terms, no new interest rate.

Why people prefer recasting:

• It’s cheaper than refinancing
• No credit check or income verification
• You keep your original interest rate
• Very little paperwork

2. How will recasting affect my monthly mortgage payment?

After you pay a lump sum, the lender recalculates your monthly payment based on your lower balance. Your loan term doesn’t change, but your monthly payment drops—sometimes by hundreds of dollars.

3. Are there any fees involved?

Yes, but they’re small. Most lenders charge a flat fee between $150 and $500. Compare that to thousands in closing costs for refinancing, and it’s clear why many homeowners choose to recast.

4. Can I recast more than once?

Some lenders allow it, others don’t. If allowed, you’ll need to meet their lump sum requirements each time. Always ask your lender about their rules before making plans.

5. What types of loans qualify for a recast?

Eligible:

• Conventional fixed-rate loans

Not eligible:

• FHA, VA, and USDA loans
• Most adjustable-rate mortgages (ARMs)

If you have a government-backed or variable-rate loan, recasting likely isn’t an option.

6. How is recasting different from refinancing?

Feature	Mortgage Recast	Mortgage Refinance
Loan Type	Same loan	New loan
Interest Rate	Stays the same	Can go up or down
Monthly Payment	Decreases	May decrease or increase
Process	Quick, simple	Requires full application
Costs	Low fee	High closing costs
Credit Check	Not needed	Required

7. Are there any downsides to recasting?

Yes, a few things to consider:

• Your interest rate stays the same (you can’t lower it)
• Your loan term won’t shorten
• You must have a large lump sum available
• Not all lenders offer recasting

If your goal is to pay off your mortgage faster or get a lower interest rate, refinancing might be the better route.

8. How much do I need to recast my mortgage?

Most lenders require a minimum lump sum of $5,000 to $10,000. The bigger the payment, the lower your monthly bill will be.

9. Can a recast help improve my cash flow?

Yes. By lowering your monthly payments, you’ll have more room in your budget. That extra cash can go toward:

• Savings
• Debt payoff
• Emergency funds
• Everyday expenses

10. Can I recast a variable-rate mortgage?

In most cases, no. Lenders usually don’t allow recasting on:

• Adjustable-rate mortgages (ARMs)
• FHA, VA, or USDA loans

You may need to refinance instead if you want to restructure one of these loan types.

Conclusion

Mortgage recasting is an excellent option for homeowners looking to reduce their monthly mortgage payments without altering their interest rate or loan term. It’s particularly beneficial if you have access to a lump sum and want to avoid the higher costs and complexities of refinancing.