![]() On the other hand, recasting isn’t the only way to direct extra money toward paying down a mortgage loan. There are several good reasons to recast a mortgage, including lowering your monthly payment and paying less in interest. In this case, recasting could be your best bet, but you should always contact your mortgage lender to see what’s possible. Some lenders will only treat extra payments as prepayment, which doesn’t actually lower your principal or reduce your interest. It’s important to note, however, that your options may be limited based on the rules in your loan agreement. When mortgage rates are as high as they are now, that can be a way to lower what you pay in interest. ![]() Another alternative to recasting is making extra principal payments through your lender to shorten your payment timeline. One alternative possibility is refinancing your mortgage. Mortgage recasting isn’t the only option for lowering your monthly payment, however. You may also be in a position to recast after selling a major item like a car or having a great run in the stock market. Situations when you could consider a mortgage recast include after receiving a major bonus or commission, a life insurance payout or an inheritance. Mortgage borrowers sometimes find themselves with significant amounts of money that they didn’t have when they initiated their mortgage loans. That assumes you have 10 years left on your loan and it’s a 5% fixed-rate mortgage. Here’s an example of a mortgage recast from an online mortgage recast calculator: If you have a loan balance of $100,000 on a mortgage and your monthly payment is $1,074, recasting with a $10,000 payment would bring your new monthly payment to $961 and you’d save $2,292 over the life of the loan. At these levels, you’re probably going to save more than a few hundred dollars in interest with the recast. Generally, recasting only makes sense when you have thousands of dollars you can use at once, like $10,000 or more. Say the fee is $250 that’s still enough to preclude you from recasting with a small sum of money for the lump-sum payment, like $1,000. Mortgage recasts aren’t terribly expensive, but they do carry a fee that may determine whether the move makes sense for you. Likewise, your interest rate stays the same. However, it doesn’t reduce the amount of time until you pay off your loan because your loan term doesn’t change. The large payment shrinks your remaining loan amount reducing how much you’ll pay in interest, and you also get lower monthly payments. After that, your loan will be re-amortized, or recalculated, based on your lower balance. ![]() Recasting your mortgage requires knocking down the principal with a lump-sum payment. Hawaii Alaska Florida South Carolina Georgia Alabama North Carolina Tennessee RI Rhode Island CT Connecticut MA Massachusetts Maine NH New Hampshire VT Vermont New York NJ New Jersey DE Delaware MD Maryland West Virginia Ohio Michigan Arizona Nevada Utah Colorado New Mexico South Dakota Iowa Indiana Illinois Minnesota Wisconsin Missouri Louisiana Virginia DC Washington DC Idaho California North Dakota Washington Oregon Montana Wyoming Nebraska Kansas Oklahoma Pennsylvania Kentucky Mississippi Arkansas Texas View Options How does a mortgage recast work? All in all, it can be a savvy financial move to reduce your monthly expenses and lower the interest paid on your home loan. Basically, you’re using the lump-sum payment to get a lower monthly payment while keeping all else the same. ![]() Recasting your mortgage doesn't reduce how many payments you have left, and you’re not changing your interest rate. (In the latter scenario, you won’t save money in interest). You want to make sure that the extra funds you’re paying are actually reducing your principal balance versus being treated as a prepayment. This can be a good option for homeowners who experience a major financial windfall and have extra money they can apply to their mortgage.ĭirecting a sum of cash toward paying down a mortgage can be more complicated than you’d think. A mortgage recast is a tool to lower your monthly mortgage payment after you make a lump-sum payment on your principal. ![]()
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