You have probably heard of refinancing your mortgage as a way to potentially lower your monthly mortgage payments. There is also another possible option called recasting. Recasting your mortgage involves making a lump-sum payment that reduces your mortgage balance and leads to a lower monthly payment.
Advantages of recasting a mortgage is that it can be simpler than refinancing a mortgage and recasting will not change the interest rate or the length of the loan.
How Does a Mortgage Recast Work?
When you recast your mortgage, you pay a lump sum toward the principal you owe on your home loan. Your mortgage servicer then calculates a new monthly payment based on the reduced balance. The term and interest rate of your loan stays the same.
What’s the Difference Between Recasting and Refinancing?
A key difference between a mortgage recast and a mortgage refinance is a recast isn’t a new loan. You do not go through a new mortgage application process, and your loan servicer does not check your credit or order an appraisal of your home.
PROS & CONS
PROS
- Lower monthly mortgage payment
- No credit check
- No closing costs
- No home appraisals
- Low administrative fees
CONS
- Not offered by all servicers
- Not all mortgages qualify
- A lump-sum payment is required
- Initial loan term doesn’t change
Is There a Fee for Recasting?
Both processes involve fees, though they’re typically lower for recasting than they are for refinancing. Even with potentially lower fees than refinancing, the process of recasting tends to be much more expensive than refinancing due to the required lump-sum payment.
What Kinds of Mortgages Qualify for Recasting?
Only conventional loans, which are not backed by the federal government, can potentially be recast. These include loans that “conform” to Fannie Mae and Freddie Mac standards, as well as jumbo loans that exceed Fannie Mae and Freddie Mac borrowing limits. Government-backed mortgages, such as FHA, VA and USDA loans, cannot be recast.
If you have any questions about recasting, contact your mortgage servicer for more information.
*Contact loan servicer. Some servicers don’t allow mortgage recasts.
This information is for educational purposes only.
