November 8th, 2019 7:50 AM by Jackie A. Graves, President
Homeowners who want to shave off dollars from their monthly
mortgage payment as well as save money on interest, might consider a mortgage
What is mortgage recasting?
A mortgage recasting, or loan recast, is when a borrower makes a
large, lump-sum payment toward the principal balance of their mortgage and the
lender, in turn, reamortizes the loan. This means that your loan is reduced to
reflect the new balance.
Recasting cuts your monthly payments and the amount of interest
you’ll pay over the life of the loan. It does not, however, affect your
interest rate or the terms of your loan.
In this way, mortgage recasting offers two — and possibly three
— attractive benefits for homeowners with some extra cash in their pocket to
pay down the balance:
How mortgage recasting
to do a loan recast, borrowers must make a large lump-sum payment toward the
loan principal. Lenders usually require $5,000 or more to recast a mortgage.
The remaining balance is then amortized to reduce the monthly payments. There
are usually fees associated with recasting. The fees vary by lender; but they
typically don’t exceed a few hundred dollars.
not only results in lower monthly payments but borrowers will also pay less
interest over the life of the loan. For example, if your 30-year mortgage carries a principal
balance of $200,000 with a 5 percent interest rate, you might pay $1,200 per
month. If you spend $50,000 to recast your mortgage, plus a $250 recasting fee,
you’ll end up saving almost $35,000 in interest payments and about $300 per
month in monthly mortgage payments. Of course, the money you sink into the
house in the recast won’t be available for investing or other purposes.
mind, recasting doesn’t reduce the term of your mortgage, just how much you pay
qualifications and availability
you get excited about lower monthly payments, first make sure your lender
offers recasting – many don’t. It’s also not something that’s normally
advertised, but most of the big banks offer it, including Chase, Bank of
America and Wells Fargo. Plus, not all mortgages qualify
for recasting; some types of loans, like FHA loans and VA loans, can’t be recast.
Mortgage recasting vs.
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
recasting, you’re keeping your existing loan, only adjusting the amortization. You wouldn’t 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, such as closing costs and
appraisal. The new loan would pay off your existing loan, so you could end up
with a new mortgage as well as new interest rates.
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 wouldn’t 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.
The benefits of mortgage
has some appeal because it’s fairly easy to do and it’s a relatively
inexpensive way to lower monthly payments if you have the cash. Here are a few
reasons you might want to consider recasting your existing mortgage:
The drawbacks of mortgage
biggest financial drawback of recasting is that you’re putting a large sum of
money into equity. These are a few reasons you might want to rethink recasting:
It doesn’t shorten the length of your mortgage.
Your interest rate stays the same, a disadvantage if you have a higher interest rate.
More of your cash is tied up in equity.
Lender charges a fee, typically no more than a few hundred dollars, to recast a loan.
current climate, with relatively low mortgage rates and a strong
market, a loan recast might not make sense for some.
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