October 6th, 2018 1:42 PM by Jackie A. Graves, President
is a recast mortgage? While it sounds more like a fishing trip than a financing tool, it's
actually where you pay off a lump sum of your principal (that's the money you
owe), then have your lender "recast" or reamortize the rest so you
can lower your monthly payments.
mortgages are rare, at least compared with the more typical way homeowners
reduce their mortgage payments by refinancing. Nonetheless, it's well worth considering in
everything you need to know to decide whether a recast or refinance is right
To make the
idea of a recast simpler, imagine your Aunt Susan has died and left you
$10,000, or you get a bonus at work. Sure, you could put that money in a CD or
other investment, or spring for a kitchen remodel. However, if lowering your
monthly mortgage payments sounds far sweeter, then a recast is the way to go.
your mortgage is a great option if you want to lower your monthly payments and
have the funds to make a lump sum payment to your lender," says Randall
Yates, founder and CEO of The
process of recasting is fairly simple: You head to your bank, fork over your
money, and pay a small fee to recast your mortgage.
your lender will use that money you've offered up to pay off your principal.
It's as if you've made a bigger down payment on your loan. If, say, you'd
originally put down $50,000 and borrowed $200,000 to pay for a $250,000 house,
after a recast, you've now put down $60,000 and owe only $190,000 (actually a
bit less, if you've been paying your mortgage for a while already).
So now that
you owe less, your lender will recalculate monthly payments over the life
of your loan. For instance, if you owe $200,000 on a 30-year fixed loan with 5%
interest, your monthly payment is $1,397. Recast so you owe only $190,000,
your monthly payment will dip to $1,343, giving you an extra $54 a month
(crunch your own numbers and see how much you'll save with an online mortgage calculator).
refinance a mortgage, your loan is actually closed, then reopened as a new loan
with new terms (length of loan and/or interest rate).
Refinancing also comes with a bunch of steps, including a home appraisal and
related fees. As a result, a refinance also takes time to finish (typically 30
to 45 days).
A recast, in
contrast, is much simpler: Your loan life, terms, and interest rate remain as
is; the only thing that changes is you get to make lower monthly payments.
recasting is a much simpler process than refinancing," says Yates.
"There is no income verification or credit check needed. The entire
recasting process can be completed in less than 30 days."
A recast is
also different from merely sending in a lump sum to prepay your mortgage early. In those cases, your monthly
payments remain the same. You will just finish off paying your mortgage
recasting is not available to all. Here are a few requirements for a recast:
If you are
eligible for a recast, there are still some questions you should ask to
determine whether a recast or refinance is right for you:
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