Is Mortgage Recast A Good Idea
If you have money saved up or receive a cash gift or inheritance, recasting your mortgage is an excellent way to invest in your home equity while keeping more of your income each month. Want lower monthly payments. By recasting your mortgage, you’ll reduce your loan principal and reduce your monthly payment amount.
How Can We Help
If you want to lower your monthly mortgage payment but cant decide whether to refinance or recast, our team members who can help you determine which option is best for you and your loan.
As the #1 trusted mortgage lender in Orange County, California, offers several tools to assist you in the mortgage application process. If refinancing is your best option, we can help you get a pre-qualification certificate within minutes.
When To Refinance A Loan
Deciding on which would be best for your mortgage is a little tricky. Typically, people refinance their mortgages to move from a fixed-rate one to an adjustable-rate mortgage, i.e., when the market causes the interest rate to keep going down. When you stick with a fixed-rate mortgage while the interest rate decreases monthly, you end up paying more than the mortgage loan is really worth, losing money in the process. Once you switch to an adjustable-rate mortgage with a variable interest rate, you get to weather the loan market to protect your money.
Since youll be taking a new mortgage, to begin with, when you refinance your loan, this will mean going through all the same processes you experienced before, paying a new set of origination fees, closing costs, and more. The main advantage of refinancing will come from a lower interest rate and another chance at deciding your loan terms. If you previously had a 15-year mortgage, this time, you can get a 30-year loan. Keep in mind that you are in this position because you are now in a better financial situation. You probably have a higher credit score which means more negotiating power with your lender.
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How Does Mortgage Recasting Work
First of all, not all banks allow their customers to recast their mortgages. Before going too far down the process, speak with your lender first to determine if this is an available option. If your lender does allow borrowers to recast their mortgages then proceed.
To be eligible for a mortgage recast, you must reduce your balance by a meaningful amount. In many cases, lenders require that youre at least $5,000 ahead of schedule in reducing your balance. You can make these extra payments as a lump sum or in smaller amounts over a period of time. For example, many homeowners pay extra on their mortgage every month to accelerate their mortgage payoff.
Contact your lender and ask to recast your mortgage. Theyll typically send you a form to complete to acknowledge your request. Take note that mortgage recasting does not require a credit check, traditional underwriting or costly fees. However, your bank may charge a nominal fee for processing the paperwork.
Although recasting does not reduce your interest rate, you will pay less interest over the life of the loan because of the reduction in mortgage balance. Receive your new payment schedule from the bank and continue making your mortgage payments as required. Although your monthly payments have decreased, your mortgage will be paid off on schedule based on the original loan term.
How Do I Qualify For Mortgage Recasting
It used to be that mortgage recasting was a widely-offered amenity, but these days, not all lenders offer mortgage recasting. If you want to recast your current loan, you will have to make sure your lender still allows it. Heres what else you need to know.
- Most lenders have a minimum amount of money you have to put down before you can start the mortgage recasting process. In most cases, its $5,000. Some lenders wont have any minimum lump-sum payment required.
- You cant have a government-backed loan.FHA loans, USDA loans, VA loans They are great in many ways, but they cant be recast.
- Your payments always have to have been on time. This is a relatively new requirement, but most lenders will ask that you have your payment history looking spotless. Its part of the whole mortgage note thing.
- In many cases, you must also meet equity requirements. Many lenders will require you to have made loan payments that have given you at least $10,000 in equity. If you dont have enough equity, you may have to find a different way to lower your monthly payments.
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Mortgage Recasting Requirements And Availability
If youre considering a mortgage recast, know that not all mortgages are eligible for recasting. For example, FHA and VA loans wont qualify, says Zoppi. USDA loans also arent eligible.
Every lender has requirements for recasting a mortgage, so its important to do your research. Your lender may also have restrictions on how many times you can recast your mortgage, says Tassone, and the minimum principal payment required for a recast varies by lender.
Make sure to contact your lender before making a large payment to make sure your mortgage is eligible to be recast and to confirm the details.
Recast Mortgage Pros & Cons
While the recast mortgage process has helped countless homeowners reduce their monthly payments, borrowers must weigh the pros and cons themselves. Everyones financial situation is different, and its not until you can look at each benefit and drawback that you will be able to tell if the recast mortgage process is right for you.
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Is A Mortgage Recast Right For You
Under the right circumstances, recasting your mortgage might make sense. If you have extra funds available and the interest rate on your existing home mortgage is low, it could be helpful to recast your mortgage to get a lower monthly payment and avoid the expense of refinancing.
Another situation where a recast might make sense is if youve purchased a new home with a mortgage before selling your old home. Once your old home sells, you might want to use the funds to pay down your new mortgage and recalculate your monthly payments, if your loan servicer allows it.
Still, there are times when other options might be more beneficial, such as refinancing your mortgage when interest rates drop.
While Credible cant help you recast your mortgage, you can compare prequalified rates on a refinance loan from multiple lenders. That information could help you decide whether recasting, refinancing, or staying the course with your existing mortgage is the right decision for you.
Mortgage Recast Vs Mortgage Refinancing
Although they sound similar, mortgage recasting and mortgage refinancing are two completely different things. A mortgage recast just affects the current loan that youre in, says Tassone. That means youll still be with the same lender and youll still have the same interest rate and loan terms.
However, when you refinance a mortgage, youre replacing your existing loan with a new one. Refinancing essentially resets the clock and it takes it back to a 30-year term in most cases, says Tassone.
Since youre sticking with the same loan, a mortgage recast is simpler than refinancing. And because of that, a recast will often come with fewer fees. With a recast, theres not really an initial outlay of money except for a couple hundred dollars, says Joseph J. Zoppi, managing partner at Templar Real.
To compare, Zoppi says one of his clients recently refinanced and ended up paying almost $5,000 in application fees and mortgage points. A lot of research, time, and money goes into securing a mortgage in the first place. So when you consider the convenience of keeping the same mortgage and simply readjusting the monthly payments with a recast its easy to see the appeal.
Another benefit to a mortgage recast is that it doesnt involve a credit check. If your credit has gone down since you first bought your house, refinancing may not be in your favor.
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Are There Any Downsides To A Mortgage Recast
The short answer is no so long as you have the cash and your mortgage allows recasting. Theres more pluses than really any minuses, says Zoppi. The biggest plus is really in terms of driving your monthly fees down and the cash outlay is less.
However, Zoppi warns against counting on a recast in case you dont qualify either because your lender wont allow it or you dont have the funds. So before you bank on a recast, you should look into your lenders requirements first.
Because every lender is different, its important to look at your current mortgage terms or ask your lender if you can recast, how much it will cost, and what the minimum principal payment would be.
Another thing to consider: be sure youre putting your money toward its best use, says Tassone. If you have other debt with a higher interest rate than your mortgage, you should focus on paying that off before spending cash reserves on a recast, he says.
And with most financial decisions, knowledge is key. Understand your financial position and where you are, says Zoppi. Then you can go to your lender and request a recast.
Should You Consider Mortgage Recast
Mortgages are long-term commitments. Sometime during the life of the loan, you will experience exceedingly different circumstances compared to when you first applied for your mortgage. You might find yourself with a better credit score, thanks to on-time bill payments. You might even have a tidier sum put away in the bank at this time. You can get to a point when you might start thinking about the original terms of your loan and compare it to the opportunities now available to you.
If you find yourself in a better financial position, one option you might explore would be recasting your mortgage. After all, if you are comfortable enough with your liquidity, you can take this opportunity to score some savings for yourself. But what does it mean to recast a mortgage?
When is it a good thing, and what are the drawbacks?
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Differences Between Mortgage Recasting And Refinancing
changing your monthly payment
| Recasting | ||
|---|---|---|
| No, you cannot recast government-backed loans. | Yes, you can refinance virtually all mortgages. | |
| Will your loan term change? | No, the length of time you pay remains the same. | Yes, you can usually choose between a standard 15 or 30-year term. |
| Do you need to make a minimum down payment? | Most lenders require a lump-sum payment of at least $5,000. | No, refinances typically donât require a down payment. |
| Do you need to pay closing costs? | Thereâs typically an administrative fee of a few hundred dollars. | Yes, closing costs amount to 2% to 5% of the loan. |
Pro Tip If current interest rates are lower than when you first got a mortgage, refinancing might be a better choice. With a recast, you keep the same interest rate, but with refinancing, you typically get the current market rate.
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Mortgage Recasting Vs Refinancing
Theres a big difference between recasting a mortgage and refinancing one, even though both can help borrowers save money. Recasting is easier than refinancing because it requires only a lump sum of money in exchange for lower monthly payments.
With recasting, youre keeping your existing loan, only adjusting the amortization. You wouldnt be able to get a lower interest rate with recasting, like you might with refinancing. On the other hand, if your interest rate is already low then refinancing could have a negative effect especially if the current rates are higher.
Refinancing, conversely, requires that you apply for a brand-new loan and pay all the fees that go with it. The new loan would pay off your existing loan, so you could end up with a new mortgage as well as a new interest rate.
Borrowers typically do this to get a lower interest rate or to go from an adjustable-rate mortgage to a fixed-rate mortgage. If you already have a fixed-rate mortgage with a low interest rate, then a refi wouldnt help you. On the other hand, if you have a low-interest, 30-year fixed-rate mortgage and want lower monthly payments, then you might consider a recast.
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Does Us Bank Offer Mortgage Recasting
Asked by: Dr. Lurline Greenfelder
What’s a U.S. Bank Smart Refinance? It’s a no-closing-cost mortgage refinance option that lets you take advantage of lower rates, get cash out at closing and change your loan term to 5, 10, 15 or 20 years. The application process is streamlined for loans under $200,000.
How Does A Mortgage Recast Work
When you recast your mortgage, you pay a lump sum toward the principal you owe on your home loan. Your mortgage lender then calculates a new monthly payment based on the reduced balance. The term and interest rate of the loan stay the same.
Recasting a mortgage does come with an out-of-pocket cost, in the form of an administrative fee, but it’s typically only a few hundred dollars.
A key difference between a mortgage recast and a mortgage refinance is a recast isn’t a new loan. You don’t have to go through an application process, and the lender won’t check your credit or order an appraisal of your home. Both processes involve fees, though they’re typically lower for recasting than they are for refinancing. Even with cheaper fees, however, the process of recasting tends to be much more expensive than refinancing thanks to the required lump-sum payment. The best choice for you depends on your needs and preferences.
Here’s an example of how a recast might work.
Let’s say you bought your home in May 2016. You currently owe $250,000, with a monthly principal and interest payment of $1,600. The interest rate for your 30-year conventional mortgage is 5%.
Now, let’s say you inherited $100,000 from your Aunt Betty, and you decide to put $50,000 of that toward a mortgage recast. While you’ll still have a 30-year loan with a 5% interest rate, the recast will drop your monthly payment from $1,600 to $1,179. That’s a savings of $421 a month.
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What Are The Disadvantages To Mortgage Recasting
Although there are plenty of scenarios where recasting makes sense, there are some clear disadvantages as well. First of all, you are putting a lot of cash into the equity of your home, which is probably a good investment but it isnt guaranteed, either. Second, it doesnt change your interest rate so if rates have dropped it may not make sense. Third, it doesnt change the term of your mortgage. And, finally, it costs money since the lender charges a fee for you to do it.
How To Recast A Mortgage
A mortgage recasting occurs when the lender agrees to reamortize your mortgage loan in exchange for a substantial, one-time payment toward the principal. Your loan terms like interest rate and term length wont change, but you will end up with a lower monthly payment. Generally, borrowers choose to recast their mortgage if they receive a large sum of cash, usually from the sale of another property.
Heres how a recast works: Say you owe around $270,000 on a 30-year mortgage loan you started a few months ago. Your interest rate is locked in at 4.75%, and your principal and interest payment is currently $1,408. You recently sold your previous residence and earned proceeds from the sale that total $30,000.
If you decide to do a mortgage recast, you can put that $30,000 toward a one-time principal payment to reduce your loan balance. Now the loan balance is approximately $240,000, and your monthly payment may be around $1,250. Not only will you reduce your monthly payment by about $150, but youll also pay much less in interest over the life of the loan .
| Original | |
|---|---|
| Interest savings | $26,118 |
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Recasting A Mortgage Vs Paying Down The Principal
A recast might sound like youre just paying down the principal with an especially large payment. But recasting a mortgage actually isnt the same thing as making extra payments or prepayments on your loan.
If you pay a lump sum on your own without recasting, you have effectively lowered your mortgage principal, but not your monthly payment. Thats because when you make these extra payments, no amortization or restructuring of the loan occurs. Youll simply have put yourself ahead of your repayment schedule, so you could potentially pay off the loan sooner, although your monthly mortgage payments will be the same until then. A mortgage recast, on the other hand, will not decrease your term length, but it will reduce your monthly payments.
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How Do I Recast A Mortgage
If you’re thinking about a mortgage recast, first make sure that you have the right kind of loan. Only certain kinds of mortgages can be recast. Government-backed loans like FHA and VA mortgages cannot be recast, while conventional loans and nonconforming loans, like a jumbo mortgage, can only be recast on a case-by-case basis.
Here are your steps to recasting a mortgage:
