February 23rd, 2018 6:53 AM by Jackie A. Graves, President
recasting is a little-known tool that helps borrowers lower their monthly
mortgage payments, without changing their interest rate. However, over time,
these lower payments do help reduce the amount of interest borrowers end up
doesn’t reduce the length of your mortgage, just how much you pay each month.
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, you’re keeping your existing loan
and adjusting the amortization. You wouldn’t be able to get a
lower interest rate with recasting, like you would with refinancing.
conversely, requires that you apply for a brand-new loan and pay all the fees
that go with a new loan, such as closing costs and appraisal. The new loan
would pay off your existing loan, so you could end up with a different type of
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.
main motivator for people interested in recasting is to save money each month.
However, because a hefty lump sum is required to get this benefit, Bill Rayman,
vice president for mortgage lending at Guaranteed Rate, suggests there are far
better ways to use that cash. According to Rayman, since putting your money in
a house has a zero rate of return, borrowers should explore other investment
options before going the recasting route.
if you parked your money in a CD, you’d make something, and, more importantly,
you’d have access to cash. In this market, you can choose from a wide variety
of investment options. Whether it’s high-risk growth stocks or low risk with
bonds or some mix in between, you’ll be earning something and you’ll have
access to cash,” Rayman says.
Rayman cites the 2008 housing crash as an important factor in deciding whether
to recast. By tying up large amounts of cash in a house, people could set
themselves up for a big financial loss – especially since equity has no bearing
on a home’s value, he says.
most dramatic thing people don’t realize about their homes is that it doesn’t
matter at all how much equity they have in that home as it relates to how much
that home is worth. The home’s value is established by the market. I’ve never
had a buyer ask whether the seller owes 10 percent on the home or owns it
outright. They don’t care,” Rayman says.
borrowers who have other outstanding debt with high interest rates, such as
student loans or car payments, it would make more fiscal sense to pay off that
debt than to recast, Rayman says.
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