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What is a mortgage recast, and will it save you money?

Yahoo Personal Finance· Getty Images
Aly J. Yale
·Freelance writer
5 min read

Refinancing is one option if you want to lower your monthly mortgage payments, but it’s not an easy or cheap one by a long shot. It requires filling out a new loan application, submitting documentation, paying closing costs, and more. It can often take a few weeks or even a month to complete.

If all that sounds like too much hassle — and you have a bit of cash on your hands — recasting your mortgage may be a better option. Here’s how a mortgage recast can help you reduce your mortgage payments and pay off your home loan faster.

In this article:

A mortgage recast involves two steps: First, you pay a large lump sum toward your mortgage balance. Once that’s settled, your lender reamortizes your loan — spreading the new, lower balance out over the remaining months of your loan term. Depending on how much you paid, this can reduce your monthly payments considerably.

Generally speaking, you might want to recast your mortgage if you need lower monthly payments, want to keep your same loan terms, or just don’t want to go through with the hassle of refinancing. It can also be a good alternative if you don’t think you’ll qualify for a refinance (for instance, maybe your credit score isn’t great).

Recasting your mortgage can be a smart move if you’re buying and selling at the same time. Say your current home has not sold yet, but you’re buying a new one. You’d take out a mortgage on the new house, and then, when your old home sells, put the sales proceeds toward your new loan and recast it. You’d then see your monthly payments fall quite a bit.

You can also consider recasting if you come into a large sum of money — maybe through an inheritance or life insurance payout, for example — or if you have a particularly low interest rate (as refinancing would mean trading that low rate in for a higher one).

In the right scenario, mortgage recasting can come with many benefits.

A mortgage recast can:

  • Lower your monthly payments: Because you decrease the loan balance and spread it out over the remaining months of your term, you’ll enjoy a lower monthly payment going forward.

  • Remove private mortgage insurance (PMI): If your lump sum payment is large enough, it could reduce your balance to 80% or less than your home’s value. When this happens, you can cancel PMI and lower your monthly payment even further.

  • Keep your current interest rate: While refinancing can help you reduce your monthly payments, it also means getting a new term length and rate. This could mean paying more in interest over the long haul, especially if you have a lower interest rate right now.

  • No credit check or application: You won’t need to file a loan application, submit documentation, or submit to a credit check for a recast. It’s a much simpler process than refinancing.

Recasting also doesn’t require closing costs as getting a new mortgage or refinancing would, but you will owe a lump sum payment and a recasting fee.

Learn more: How much does private mortgage insurance (PMI) cost?

To recast a mortgage, you’ll first need to speak to your lender, as the process and requirements can vary from one company to the next.

Usually, you’ll need to make a lump-sum payment toward your existing loan (there may be a minimum you’ll need to meet), and then you’ll pay a recast fee and fill out some paperwork. From there, your lender reamortizes your loan and notifies you of your new monthly payment.

The exact requirements of a mortgage recast vary by lender, but you can generally expect to need a minimum lump sum payment of $5,000 to $10,000.

You’ll also need a conventional loan — not a government-backed mortgage like an FHA loan, USDA loan, or VA loan. These loans are not eligible for recasting.

Finally, your mortgage lender will also typically require that you have a certain number of on-time mortgage payments before you can recast your loan. Fortunately, there is no minimum credit score or credit check needed with recasts. This is one of the major benefits of recasting over refinancing.

Read more: What are government-backed mortgages?

Refinancing your mortgage is the primary alternative to recasting, but these are two very different processes and outcomes. With a refinance, you apply for an entirely new loan and replace your existing mortgage. Your new loan will have a different term, rate, and payment, and it will require a full application and approval process.

Recasting is a simpler process that just requires a lump-sum payment and reamortizing your loan balance. Here’s a quick look at how refinancing and recasting compare side by side:

Aside from refinancing and recasting, forbearance is an option for homeowners having trouble making their monthly payments. This hardship option allows you to reduce or pause payments temporarily while you get back on your feet. You’ll need to contact your mortgage lender to see what’s available in your situation.

Read more: Is now a good time to refinance your home?

Though it depends on the exact terms of your loan, there’s usually no limit to how many times homeowners can recast a mortgage. If you’re considering recasting more than once, talk to your lender about whether it’s the best option.

A mortgage recast may be a good idea if you need lower monthly payments, especially if you’re worried you won’t qualify for a traditional refinance or don’t want to lose your low interest rate.

It depends on your lender, but you’ll usually pay anywhere from $150 to $500 to recast your mortgage, plus the lump sum payment you put toward your loan balance. Many lenders require at least $5,000 to $10,000 for this.

No, government-backed loans such as USDA, FHA, and VA loans cannot be recast. You’ll need a conventional loan (either conforming or jumbo) if you want to recast your mortgage.

This article was edited by Laura Grace Tarpley.