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What is a mortgage recast?
Mortgage recasting is a way to lower monthly mortgage payments without refinancing. To recast the mortgage, you first make a large payment to the principal. Then your lender will Reorganization A smaller balance that is newer than the existing loan term.
Repaying small amounts over the same period means reducing monthly mortgage payments and total interest costs. your interest rate Other loan terms remain the same.
Only specific Types of mortgages -In other words, traditional loans – eligible for recast. Usually, government-supported mortgages cannot be recast FHA, VA and USDA loan.
How do mortgages work?
If you decide to recast your mortgage, here is how the process usually works:
- Contact your lender to determine eligibility: Make sure your lender and loan type allow recasts. If so, ask about the specific requirements you need to meet.
- Make a payment: Next, you will make a massive lump payment for the Lawn Principal. Lenders may require a minimum amount, often $5,000 or $10,000.
- Your lender will recalculate your loan balance and payment: After applying for payment to the principal, the lender will recalculate monthly payments based on your new low balance.
- If applicable, you will pay a recast fee. If a lender charges a recast fee, it usually costs between $150 and $500.
Please note: Recast does not change the repayment schedule, I’ll pay back your mortgage Early; you only pay less each month.
Recasting and refinancing your mortgage
Recasting the mortgage and Refinance Both can lower monthly payments, but there is an important difference between the two.
- Refinance: If you are refinancing, you apply for a completely new mortgage and have a new one. interest rate and pay terminology, and another set Closure costs. Your new loan will pay back your old loan. To get a better interest rate, most borrowers will either refinance and switch from adjustable mortgages to fixed rate ones or exchange cash stocks to get a better interest rate. Cash-out refinance.
- Recast: Once you re-create your mortgage, the loan will remain intact, but your monthly payments will change. It won’t be shorter repayment periods or lower interest rates, but you may prefer it if the interest rate is already below Current rate.
Do I need to recast or refinance my mortgage?
If you want to maintain your current interest rate and put a lump sum towards your principal, recasting is more suitable. However, if you want to adjust your fees, refinance is a better option if you want to shorten your repayment period and exchange some of your capital for cash or all of these.
Restructuring your mortgage and creating additional principal payments
Recasting your mortgage and paying additional principal amounts reduces your principal balance and saves you money in interest. The differences are as follows: When you recast, you maintain the original loan term, but lower your monthly mortgage payments. Paying additional principal will actually increase the amount you pay on your mortgage each month, but you can repay the loan early. Also, Additional payments It is usually not as substantial as the lump sum you pay when recasting.
Check out the bank rate to understand how making additional principal payments affects your loan Mortgage Payoff Calculator.
Do I need to recast or pay additional principal?
If you want to pay off your mortgage faster, it’s best to make additional principal payments. But if you rather want Reduce monthly mortgage paymentsyou should consider recasting.
How to calculate mortgage recasting
If you’re interested to see how much your monthly payments will change after recasting, you can use the bank rate Depreciation Schedule Calculator.
For example, let’s say you take a 30-year mortgage for $350,000 at an interest rate of 6.8%. Monthly principal and interest payments are $2,281.74.
Ten years later, the balance will be $298,915. At that point, I decided to make a $50,000 suspension payment, cut my balance to $248,915, and recast the loan. You will also pay a $250 recast fee. During the last 20 years of your term, your monthly payments will be $1,900, more than $380 less than the original payment.
| Mortgage period number | Amounts used without recasting | The balance left without recasting | The amount spent on recasting ten years later | The balance and recasting that remained in 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 a mortgage recast
To be eligible for a mortgage restructuring, certain requirements must be met. You should generally have:
- Traditional loans: Government-supported mortgages – Includes FHA, VA, USDA loans – Not eligible for recast.
- Minimum lump sum payment: To recast a loan, you may need to pay the minimum principal to recast a loan that is often $5,000 or $10,000.
- Minimum stockSome lenders need a certain amount Home Equity Re-create your mortgage.
- A good loan position: To recast your loan, you need a proven record of on-time mortgage payments.
Pros and cons of recasting a mortgage
Recasting your mortgage is a great way to lower your mortgage payments, but there is a downside.
Should I re-create my mortgage?
Mortgage recasting is an effective way to reduce monthly mortgage payments and save on interest. And if you’re one of three-quarters of American mortgages at a rate of less than 5%, refinance is probably not an attractive option.
However, recasting is not appropriate for everyone. You should only consider recasting if:
- Your lender and loan type will allow it
- You are satisfied with your current loan terms
- You have a large lump sum payment to direct your mortgage principal – and that money will not be spent more for other purposes
Even if tens of thousands of dollars can be dedicated to recasting, you should ensure that recasting is the best use of those funds. For example, if you don’t have an emergency fund or have a high profit, you’d like to start there. Similarly, if you have a relatively low interest rate on your mortgage and you can make money profits by investing, you can consider doing it instead of recasting.
