What is a recast?
Short Answer:
Mortgage recasting, also known as re-amortization, is a process that allows homeowners to reduce their monthly mortgage payments without changing the interest rate or term of the loan. This is achieved by making a significant lump-sum payment towards the principal balance of the mortgage. The lender then recalculates the monthly payments based on the new, lower principal amount, resulting in reduced monthly payments for the borrower. Recasting is not avalible on all mortgage and must be approved by the mortgage servicer.
Longer Answer:
A few months ago, I had a client reach out to get advice. The year prior, I had helped them secure a mortgage with a modest down paymen to purchase new house. At the time, we couldn't coordinate the sale of their current home at the same time as buying. The sale of their old home was now complete and they had a six figure payout from the sale. They wanted to discuss refinancing their mortgage and use the proceeds to paydown the balance.
During our conversation, we discussed the refinance process. Paying down the balance of the mortgage, during the refinance, would drop their mortgage payment. However, there wasn't a large difference between their current interest rate and new interest rates. My suggustion was to reach out to their current mortgage servicer and discuss a "recast" of the mortgage using the proceeds from the sale of their property.
What is Mortgage Recasting?
Mortgage recasting is a process where a borrower makes a large lump-sum payment towards the principal balance of their mortgage. The lender or mortggae servicers then recalculates the monthly payments based on the new, lower principal amount. This results in reduced monthly payments while keeping the same interest rate and loan term without having to complete a full refinance.
What are the Key Features of Mortgage Recasting?
- Lump-Sum Payment: A significant payment is made towards the principal. Each mortgage servicer will have a minimum amount that they require to complete a recast of a mortggae.
- Recalculated Payments: Monthly payments are recalculated based on the reduced principal balance of the mortgage.
- Same Interest Rate and Term: The interest rate and loan term remain unchanged, as due almost all the other mortgage terms.
- Cost: Typically involves a small fee, usually much lower than refinancing costs.
- Minimum Paper Work: The mortgage servicer will need you to sign some documents to finish the recast. However, the amount of documents will be less than what would be required for a full refinance.
What are the Benefits of Mortgage Recasting?
- Lower Monthly Payments: The primary benefit is the reduction in monthly mortgage payments and overall interest paid over the lift of the mortgage.
- Cost-Effective: Mortgage recasting usually involves a nominal fee, making it a cost-effective alternative to refinancing.
- No Credit Check Required: Unlike refinancing, mortgage recasting does not require a credit check, a new appraisal or underwriter full approval.
- Simplicity: The process is straightforward and less time-consuming compared to refinancing.
Which Mortgages Allow Recasting?
Not all mortgages are eligible for recasting. Here’s a breakdown of which types typically allow it:
- Conventional Mortgages: Most conventional mortgages, especially those held by Fannie Mae or Freddie Mac, allow for mortgage recasting. It’s always best to check with your mortgage servicer for specific eligibility requirements.
- Jumbo Mortgages: Some jumbo mortgages, which are loans that exceed the conforming loan limits, may also offer recasting options. This depends on the lender’s policies.
- Portfolio Mortgages: Mortgages that are kept on the lender’s balance sheet rather than sold to investors may also be eligible for recasting.
What Mortgages Don't Allow Recasts?
- FHA Mortgages: Federal Housing Administration (FHA) loans generally do not offer recasting options.
- VA Mortgages: Mortgages guaranteed by the Department of Veterans Affairs (VA) usually do not allow for recasting.
- USDA Mortgages: Mortgages backed by the United States Department of Agriculture (USDA) also typically do not permit recasting.
How to Recast Your Mortgage
If you’re considering mortgage recasting, follow these steps:
- Check Eligibility: Contact your lender or mortgage servicer to confirm that your mortgage is eligible for recasting and inquire about any specific requirements or fees.
- Make a Lump-Sum Payment: Determine the amount you can afford to pay towards your principal. This amount should be substantial, as it will significantly impact your new monthly payments.
- Submit a Request: Submit a formal request to your lender to recast your mortgage. This usually involves filling out a form and paying a small fee. Confirm how to transfer over the money for the principal reduction.
- Recalculation: Once approved, your lender will recalculate your monthly payments based on the new principal balance.
Conclusion
Mortgage recasting is an excellent option for homeowners who have come into a large sum of money and want to reduce their monthly mortgage payments without the hassle and expense of refinancing.
Always consult with your mortgage servicer to understand the specific terms and conditions associated with mortgage recasting for your loan. This simple yet effective strategy could provide the financial flexibility you need to achieve your broader financial objectives.
Have additional questions about mortgage reacasting, I am happy to answer them. Reach out to me at teamjd@mainstreethl.com
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This blog is for informational purposes only. Make sure you understand the features associated with the loan program you choose, and that it meets your unique financial needs. Subject to Debt-to-Income and Underwriting requirements. This is not a credit decision or a commitment to lend. Eligibility is subject to completion of an application and verification of home ownership, occupancy, title, income, employment, credit, home value, collateral, and underwriting requirements. Not all programs are available in all areas. Offers may vary and are subject to change at any time without notice. Should you have any questions about the information provided, please contact me.
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