What is Recasting a Mortgage

Let’s say that you are the lucky recipient of a significant sum of money. Great Aunt Martha died or your played the lottery and won. You have decided to use that money to pay down your mortgage. What is the best way to do that?  Let’s say you just provide your mortgage company with a lump sum payment, to go towards principal. The amount that you owe is reduced and the length of time that you have to make payments on your mortgage is reduced. However, your monthly payment will remain the same. This is why it is important to understand what is recasting a mortgage.

So What is Recasting a Mortgage

An image of pennies and keys.

If you would prefer to have your monthly payment reduced once you make your substantial payment, there are only two ways to do so.  One is through refinancing your mortgage and the other way is through recasting your mortgage. If you refinance your mortgage that will cost you thousands of dollars. Additionally, it will change your interest rate and length of your mortgage and your payment. When you recast your interest rate remains the same. The length of the term of the mortgage remains the same. However, the amount that you owe is smaller because of the lump sum payment that you have made. Additionally, your payment is in turn reduced.

It’s In The Numbers

For example, if you owed $300,000 on your mortgage and you payed down $100,000 your payment could be reduced to a payment $1,000 a month.  Prior to recasting your payment was $1,500.  If you had a thirty year mortgage and you still had 14 years left to pay it off, you still would have 14 years to pay it off after recasting. If your interest rate had been 4% it still would remain 4% after your loan was recast. This can be especially appealing as interest rates continue to rise. The cost to recast is in the range of $250 to $500 depending on who holds your mortgage. The typical length of time to complete the recasting is about 3 months. During that time you will continue to make your payments like you always have.

What do you need to do if recasting sounds appealing to you? 

The first step will be to contact your mortgage company and find out if they offer recasting and to verify how much it costs. Your mortgage company will provide you with the details of their process.  Not all of us will be lucky enough to receive such a gift during our lives, but if you are the lucky person it is good to know about recasting.  You can then thank Great Aunt Martha every month when you make that lower payment.  Or if you won the lottery you can thank the lottery. Contact us with any real estate questions you have.