Your current interest rate stays the same so, at times when you can't refinance into a loan with a lower interest rate, a recast can still make sense. Lower fees. Most lenders charge a $150 to $500 fee for a mortgage recast, which is much cheaper than paying refinance closing costs.
Look at the amortization schedule. Paying additional principal reduces it from the tail. If you are beyond the midpoint of the loan duration, you hardly save any money in interest. In almost all cases recasting is a better option.
You must make at least two consecutive monthly payments at your current amount before a lender recasts your loan. There's usually a small fee of $250 to $500 that comes with the recast. There's typically no limit on how many times you can recast your loan.
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 you can proceed.
A mortgage recast is when you make a large, lump-sum payment toward your mortgage's outstanding principal balance. Your lender then recalculates your monthly payments based on that reduced balance, which means that the payment amount drops. Your loan repayment term and interest rate won't change, however.
A recast can be the perfect solution if you have a large amount of money to put toward your loan but aren't sure how your income will change in the future. Recasting allows you to save on interest without taking on a higher monthly payment. You apply your lump sum directly to the principal.
Another recasting benefit: If you didn't have the 20% down payment and therefore had to pay private mortgage insurance (PMI) on your loan, recasting—to the point of having at least 20% paid—may have removed the extra cost of PMI. Plus, you may be able to pre-pay your mortgage even after recasting.
When you make a lump-sum payment on your mortgage, your lender usually applies it to your principal. In other words, your mortgage balance will go down, but your payment amount and due dates won't change.
When you recast your mortgage, you'll keep the same interest rate and term. Recasting might be simpler and cheaper than refinancing, depending on how much you pay in the lump sum.
Loan recast: A recast simply recalculates your monthly payments based on the lump sum that you applied to the principal balance; your loan terms don't change. Loan modification: A modification changes your loan terms. Your lender may extend the loan term, reduce the interest rate, and/or reduce the principal balance.
Making an extra mortgage payment each year could reduce the term of your loan significantly. The most budget-friendly way to do this is to pay 1/12 extra each month. For example, by paying $975 each month on a $900 mortgage payment, you'll have paid the equivalent of an extra payment by the end of the year.
You may be charged an early repayment charge for leaving your existing lender within the terms of your mortgage deal. This is usually between 1% and 5% of your remaining mortgage cost.
Not all lenders offer mortgage recasts, and not all loans are eligible for a recast (for example, FHA/VA and USDA loans do not permit a recast option). Additionally, there may be restrictions regarding how much you owe, how much you've paid and your payment history.
Many lenders (like Fannie Mae) also require a two-year “seasoning requirement,” meaning you can't have PMI removed until you've made two years' worth of on-time payments—even if your equity has grown above 20%. If it's been less than five years, you might even be required to have 25% worth of equity.
Note: The Recast Agreement lists your new, lower monthly payment amount. We will re-amortize your mortgage loan accordingly. You will see your new monthly payment amount reflected in your monthly billing statement, as of the effective date. Note: The recasting process can take up to 90 days.
There are three major benefits to recasting: lower monthly payments, reduced interest costs, and an overall easy process, particularly compared to refinancing.
There is typically no limit on how many times you can recast your loan.
You took out a $400,000 mortgage loan at a 5% interest rate with a monthly payment of $2,147. Ten years later, your outstanding balance was $325,368. You decided to recast a mortgage for a $250 fee. You put $60,000 toward the principal balance to re-amortize the loan, reducing the balance to $265,368.
What disqualifies me from refinancing? Homeowners are commonly disqualified from refinancing because they have too much debt. If your DTI is above your lender's maximum allowed percentage, you may not qualify to refinance your home. A low credit score is also a common hindrance.