Most homeowners know about refinancing, but far fewer know about a powerful alternative called a mortgage recast. A recast lets you make a large one-time payment toward your loan principal, and your lender then recalculates your monthly payment based on the new, lower balance. Your interest rate and loan term stay exactly the same. This can be an easy and affordable way to reduce your monthly payment without the cost and paperwork of a refinance.
How a Mortgage Recast Works
With a recast, you make a lump-sum payment toward your loan, usually a minimum of $5,000 to $10,000. Your lender then re-amortizes the loan using the remaining term and your original interest rate. The result is a noticeably lower monthly payment because the principal was reduced upfront. The benefits of a mortgage recast is that your monthly payment is lowered by spreading a smaller balance over the same number of remaining years of your loan.
For example, if you had a $400,000 loan at 6.5% with 25 years left, and you paid $100,000 toward the balance, your payment could drop from about $2,700 per month to around $2,000*.
Recasts are also inexpensive. Most lenders charge only a small fee, usually between one hundred fifty and five hundred dollars, which is much lower than the closing costs of a refinance. There is no credit check, income review, or appraisal required. Since the principal drops immediately, you also save interest over time, and the savings are even greater if you continue paying your original monthly amount voluntarily. It is important to check with your mortgage company to confirm whether a recast is available for your specific loan, as not all lenders or loan types offer this option.
Potential Drawbacks
A recast requires a substantial amount of cash upfront, which can limit your liquidity or reduce funds that could be invested elsewhere. Some loans do not qualify, including many FHA, VA, and USDA loans. The interest rate on your loan does not change, so if you currently have a higher rate than the market offers, a refinance may still be the better long-term option. A recast also does not shorten your loan term unless you continue making higher payments on your own.
Recast or Refinance: Which Is Better?
A recast keeps your same rate and same term and costs very little, while maintaining your current loan timeline. A refinance gives you the opportunity for a lower interest rate or a shorter loan term but includes higher upfront costs and additional qualification requirements. A recast works best when your current rate is already favorable and you have extra cash available. A refinance works best when you want a lower rate or a faster payoff schedule.
When Does a Recast Make Sense?
A recast is a great option if you received a large bonus, inheritance, or proceeds from selling another property. It is also helpful if you plan to stay in your home and want lower monthly expenses without refinancing. Homeowners who prefer stability and simplicity often appreciate the ease of a recast.
**Please note that The Atha Team does not provide mortgage or lending services. Be sure to consult a qualified mortgage professional for advice tailored to your financial needs.**