You must make at least two consecutive monthly payments at your current payment amount before a loan can be recast. There may be a small fee (typically around $250) associated with the recast. There is not typically a limit on how many times someone can recast their loan.
Drawbacks of mortgage recasting
Doesn't shorten the length of your mortgage. Your interest rate stays the same, a disadvantage if you have a higher interest rate. More of your cash is tied up in equity. Lender charges a fee, typically no more than a few hundred dollars.
As stated, government programs like FHA and VA loans generally don't qualify for recasting. You need to make a minimum payment amount. Lenders usually only consider a recast if you make a minimum lump-sum payment that's either a specific fixed amount or a percentage of your principal. Plus, you'll need to pay a fee.
Is a recast mortgage a good idea? The biggest takeaway when considering a recast mortgage is that it will not lower your mortgage rate or shorten the remaining loan term. If you are looking to pay off your mortgage faster, you can still make bigger payments to pay down the principal after the recast.
If you have money saved up or receive a cash gift or inheritance, recasting your mortgage is an excellent way to invest in your home equity while keeping more of your income each month. Want lower monthly payments. By recasting your mortgage, you'll reduce your loan principal and reduce your monthly payment amount.
Wells Fargo, Bank of America, JPMorgan Chase and Quicken Loans offer mortgage recasts on some, though not all, of their loans. Recasts aren't well known for a few reasons. Record-low interest rates in recent years made refinancing the go-to approach for borrowers looking to save on monthly payments.
A recast mortgage is a process of reevaluating monthly mortgage payments by taking the loan's balance and dividing it by the remaining months left on the mortgage term. In doing so, homeowners ahead of schedule may be eligible to reduce their monthly payments.
You must make at least two consecutive monthly payments at your current payment amount before a loan can be recast. There may be a small fee (typically around $250) associated with the recast. There is not typically a limit on how many times someone can recast their loan.
Since your interest is calculated on your remaining loan balance, making additional principal payments every month will significantly reduce your interest payments over the life of the loan. By paying more principal each month, you incrementally lower the principal balance and interest charged on it.
Some lenders require a minimum of $5,000 for a recast, and you get a lower monthly payment with only about $250 in closing costs. This payment on the principal may be enough to get you below the 80 percent loan-to-value ratio and allow you to drop the PMI.
Recasting changes your loan balance after you have paid a large amount, creating a lower monthly payment. Refinancing is applying for a new loan to replace your old mortgage, often with better terms, such as lower interest.
How Does Mortgage Recasting Work? First of all, not all banks allow their customers to recast their mortgages. Before going too far down the process, speak with your lender first to determine if this is an available option. If your lender does allow borrowers to recast their mortgages then proceed.
Homeowners who are looking for a way to lower their monthly mortgage payments without changing their interest rate or loan terms should consider a mortgage recast. Recasting, or reamortizing, a mortgage can create both long-term and short-term savings.
The benefit of a mortgage recast is simple: It lowers your monthly payments, making your housing costs more affordable. If you paid a lump sum toward your mortgage without recasting, you'd reduce your balance, but your monthly payments would stay the same.
Regardless of the amount of funds applied towards the principal, paying extra installments towards your loan makes an enormous difference in the amount of interest paid over the life of the loan. Additionally, the term of the mortgage can be drastically reduced by making extra payments or a lump sum.
Most lenders require proof of at least six months' worth of payments before you can recast your mortgage.
If you decide you can't afford your overpayments, you can reduce or stop them at any time and go back to your original monthly mortgage repayment. Paying a lump sum off your mortgage will save you money on interest and help you clear your mortgage faster than if you spread your overpayments over a number of years.
Putting extra cash towards your mortgage doesn't change your payment unless you ask the lender to recast your mortgage. Unless you recast your mortgage, the extra principal payment will reduce your interest expense over the life of the loan, but it won't put extra cash in your pocket every month.
Loan recasts are allowed on conventional, conforming Fannie Mae and Freddie Mac loans, but not on FHA mortgage loans or VA loans. Some lenders recast jumbo loans, but consider them on a case-by-case basis.
Recasts are usually allowed on conventional and conforming Fannie Mae and Freddie Mac loans, though not FHA and VA loans. Besides recasting so that the monthly payment is lower, homeowners may want to recast if they're buying a new home but can't yet sell their old home and are paying two mortgages for awhile.