Artfoliophoto/ Getty Images; Illustration by Austin Courregé/Bankrate
Key takeaways
- Mortgage recasting lets you reduce your mortgage payments and total interest by paying a lump sum toward your loan principal.
- When you recast a mortgage, your interest rate and loan term stay the same.
- Recasting a mortgage is often easier and less expensive than refinancing, but not all lenders allow recasting.
What is a mortgage recast?
A mortgage recast is a way to lower your monthly mortgage payments without refinancing. To recast a mortgage, you’ll first make a large payment toward your principal. Then, your lender will reamortize the new, smaller balance over your existing loan term.
Because you’ll repay a smaller amount over the same period of time, you’ll end up with lower monthly mortgage payments and a lower total interest cost. Your interest rate and other loan terms will remain the same.
Only certain types of mortgages — namely, conventional loans — are eligible for recasting. You usually can’t recast government-backed mortgages, including FHA, VA and USDA loans.
How does recasting a mortgage work?
If you decide to recast your mortgage, here’s how the process typically works:
- Contact your lender to determine your eligibility: Make sure your lender and loan type allow recasting. If they do, ask about the specific requirements you’ll need to meet.
- Make a payment: Next, you’ll make a large, lump-sum payment toward your loan principal. Your lender may require a minimum amount, often $5,000 or $10,000.
- Your lender recalculates your loan balance and payments: After applying the payment to your principal, your lender will recalculate your monthly payments based on your new, lower balance.
- You pay the recasting fee, if applicable: If your lender charges a fee for recasting, it’ll typically cost between $150 and $500.
Keep in mind: Recasting doesn’t change your repayment schedule, so you won’t pay off your mortgage early; you’ll just pay less each month.
Mortgage recasting vs. refinancing
Mortgage recasting and refinancing can both lower your monthly payment, but there are important differences between the two:
- Refinancing: When you refinance, you’ll apply for an entirely new mortgage, with a new interest rate and terms, and pay another set of closing costs. Your new loan will pay off your old one. Most borrowers refinance to get a better interest rate, switch from an adjustable-rate mortgage to a fixed-rate one or swap equity for cash, in the case of a cash-out refinance.
- Recasting: When you recast your mortgage, your loan stays as-is, but your monthly payment changes. You won’t get a shorter repayment term or a lower interest rate, but you may prefer that if your rate is already below current rates.
Should you recast or refinance your mortgage?
If you’d like to keep your current interest rate and have the lump sum to put toward your principal, a recast is a better fit. However, if you’d like to adjust your rate, shorten your repayment term, exchange some of your equity for cash, or all of these, refinancing is the better option.
Mortgage recasting vs. making extra principal payments
Both recasting your mortgage and making extra principal payments will reduce your principal balance and save you money on interest. Here’s the difference: When you recast, you keep your original loan term, but you lower your monthly mortgage payments. If you make extra principal payments, you actually increase the amount you’re paying toward your mortgage each month, but you can pay off your loan early. Also, the additional payments typically aren’t as substantial as the lump sum you’d pay when recasting.
To understand how making extra principal payments might affect your loan, check out Bankrate’s mortgage payoff calculator.
Should you recast or make extra principal payments?
If you want to pay off your mortgage faster, then making extra principal payments is the way to go. But if you’d rather reduce your monthly mortgage payment, you should consider recasting.
How to calculate your mortgage recast
If you’re curious how much your monthly payment would change after recasting, you can use Bankrate’s amortization schedule calculator.
As an example, let’s say you take out a 30-year mortgage for $350,000 at an interest rate of 6.8 percent. Your monthly principal and interest payment is $2,281.74.
After 10 years, the balance would be $298,915. At that point, you decide to recast the loan by making a $50,000 lump-sum payment, reducing your balance to $248,915. You’ll also pay a $250 recasting fee. For the final 20 years of your term, your monthly payment will be $1,900 — more than $380 less than your original payment.
| Number of years into the mortgage term | Amount spent without recasting | Balance left without recasting | Amount spent with recasting after 10 years | Balance left with recasting after 10 years |
|---|---|---|---|---|
| 10 years |
$273,809 |
$298,915 |
$324,059 |
$248,915 |
| 15 years |
$410,713 |
$257,044 |
$438,063 |
$214,048 |
| 20 years |
$547,617 |
$198,274 |
$522,067 |
$165,108 |
| 30 years |
$821,426 |
$0 |
$780,075 |
$0 |
How to qualify for mortgage recasting
To be eligible for mortgage recasting, you’ll need to meet specific requirements. You must generally have:
- A conventional loan: Government-backed mortgages — including FHA, VA and USDA loans — aren’t eligible for recasting.
- A minimum lump-sum payment: You might need a minimum principal payment to recast a loan, often $5,000 or $10,000.
- A minimum amount of equity: Some lenders require a certain amount of home equity to recast a mortgage.
- Good loan standing: You should have a proven record of on-time mortgage payments to recast your loan.
Pros and cons of a mortgage recast
A mortgage recast can be a great way to lower your mortgage payments, but there are downsides.
Pros
- Reduced monthly payments and total interest: Recasting lowers your monthly payment for the remainder of your loan term. Accordingly, you’ll pay less in interest over the life of your loan.
- Keep your interest rate: This can be beneficial if rates have gone up since you got your mortgage.
- Less expensive and time-consuming than refinancing: Most lenders charge a few hundred dollars to recast, while refinance closing costs average 2 to 6 percent of the new loan amount. Plus, unlike refinancing, recasting doesn’t require a credit check or home appraisal.
Cons
- You might not qualify: Not all lenders offer recasting, and not all loan types are eligible.
- Requires a large sum of money: Typically, you’ll need at least $5,000, plus the recast fee, to recast your mortgage.
- Payoff date doesn’t change: Recasting reduces your monthly payments, but it doesn’t shorten your repayment schedule. You’ll continue making payments until you reach your original mortgage payoff date.
Should you recast your mortgage?
Recasting your mortgage is an effective way to reduce your monthly mortgage payments and save on interest. And if yours is one of the three-quarters of American mortgages with a rate below 5 percent, refinancing is probably not an appealing option.
However, recasting isn’t right — or available — for everyone. You should only consider recasting if:
- Your lender and loan type allow it
- You’re satisfied with your current loan terms
- You have a large lump sum to put toward your mortgage principal — and that money wouldn’t be better used for other purposes
Even if you have tens of thousands of dollars you could devote to a recast, you’ll want to ensure that a recast is the best use of those funds. For example, if you don’t have an emergency fund or you’re carrying high-interest debt, you’ll want to start there. Likewise, if your mortgage has a relatively low interest rate, and you could get a better return on your money by investing it, you may consider doing that in place of a recast.
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