Mortgage recasts reduce a borrower’s loan balance and monthly mortgage payment without refinancing. Recasting also requires no appraisal or full credit qualifying.
What is a Mortgage Recast?
Recasting allows homeowners to make a lump sum principal payment AND recalculate their monthly payment at the same time. In other words, with a recast a borrowers monthly payment is reduced based on the newly paid down mortgage balance.
After all, anyone can make a lump sum payment after closing to lower their loan balance. However, without recasting, a borrower’s monthly payment remains the same even after paying down the mortgage. Conversely, recasting results in a lower monthly mortgage payment based on the new lower mortgage balance.
In short, when a borrower recasts their lender recalculates their mortgage payment. The new monthly mortgage payment is based on the following factors in a recast:
- New loan amount
- Remaining months left in original loan term
- Original interest rate
For example, assume a borrower with an original loan of $450,000 at a rate of 5% over a 30 year term (360 months) recasts after making 3 payments. Their new payment after recasting is based on a loan balance of $448,371, a rate of 5% and a loan term of 357 months.
Recasting Versus Refinancing
Both recasting and refinancing result in new loan amounts and a new mortgage payments. However, that’s where the likeness ends.
Most refinancing requires borrower’s to qualify. Except for VA Streamline refinances and FHA Streamline refinances, lenders review borrower’s credit, income and assets for a refinance. On the other hand, recasting requires no income or asset review.
Also, recasting does not require an appraisal. Refinancing often requires an appraisal. Exceptions include some FHA and VA Streamlines and refinance loans receiving an appraisal waiver.
Lastly is interest rate. Recasting maintains the same interest rate borrowers closed at initially. However, refinancing changes a borrowers interest rate based on market conditions.
Recasting Isn’t For Everyone
Not all loan types offer a recast option. In addition, lenders charge different amounts to perform a recast. Before closing on your new home loan talk with your lender about recasting if you feel you may recast at some point.