When homeowners look for ways to reduce their mortgage payments, they often think of refinancing. However, mortgage recasting is another lesser-known but effective strategy that can help lower monthly payments without the hassle of securing a new loan. This article explores what mortgage recasting is, its pros and cons, and how it compares to refinancing.
Contents
What Is a Mortgage Recast?
A mortgage recast is a process in which a homeowner makes a large, lump-sum payment toward their mortgage principal. In return, the lender recalculates the remaining balance and adjusts the monthly payments based on the lower principal amount. However, the interest rate and loan term remain the same.
Recasting is primarily available for conventional loans and typically isn’t an option for government-backed mortgages like FHA, VA, or USDA loans. Not all lenders offer mortgage recasting, so it’s important to check with your mortgage servicer before pursuing this option.
Pros of Mortgage Recasting
✅ Lower Monthly Payments – Since the principal is reduced, your new monthly payment decreases, making your mortgage more manageable.
✅ No Need for Loan Requalification – Unlike refinancing, a mortgage recast does not require a credit check, income verification, or an appraisal.
✅ Lower Interest Costs Over Time – While your interest rate stays the same, a lower principal means less interest paid over the life of the loan.
✅ Minimal Fees – Recasting fees are usually low, typically between $150-$500, compared to the thousands in closing costs for refinancing.
✅ Keeps Your Existing Interest Rate – If you locked in a low interest rate, you won’t lose it, even if current rates are higher.
Cons of Mortgage Recasting
❌ Requires a Lump-Sum Payment – You must have a significant amount of cash available to pay down the principal.
❌ Doesn’t Reduce Interest Rate – If market rates are lower than your current mortgage rate, recasting won’t help you take advantage of a better rate like refinancing would.
❌ Not Available for All Loans – Government-backed loans and some lender-specific mortgages do not allow recasting.
❌ No Access to Home Equity – Unlike a cash-out refinance, recasting does not provide you with cash from your home equity.
Mortgage Recasting vs. Refinancing: Which Is Better?
Here’s how recasting compares to refinancing:
| Feature | Mortgage Recasting | Mortgage Refinancing |
|---|---|---|
| Requires a lump-sum payment | ✅ Yes | ❌ No |
| Lowers monthly payment | ✅ Yes | ✅ Yes |
| Lowers interest rate | ❌ No | ✅ Yes |
| Requires new loan approval | ❌ No | ✅ Yes |
| Involves closing costs | ❌ No (low fees) | ✅ Yes (higher costs) |
| Keeps existing loan terms | ✅ Yes | ❌ No (new loan terms) |
| Works for all loan types | ❌ No (not for FHA, VA, USDA) | ✅ Yes |
When to Choose Mortgage Recasting
- You have a large sum of money (e.g., inheritance, work bonus, savings) and want to lower your mortgage payments.
- You already have a low interest rate and don’t want to refinance at a higher rate.
- You want to reduce payments without the hassle of loan requalification or high closing costs.
When to Choose Refinancing
- Interest rates have dropped, and you want to secure a lower rate.
- You need to change your loan term (e.g., switch from a 30-year to a 15-year mortgage).
- You want to cash out home equity for home improvements, debt consolidation, or other expenses.
Final Thoughts
Mortgage recasting is a great strategy for homeowners who want to reduce their monthly mortgage payments without refinancing. If you have a lump sum available and your lender allows recasting, it can be a cost-effective way to ease financial stress. However, if you’re looking for a lower interest rate or need access to home equity, refinancing might be the better option.
Before making a decision, consult with your lender to explore the best choice for your financial situation.
