Understanding Mortgage Recasting
If you pride yourself on the impressive size of your savings account, you have more than enough to make a lump-sum payment, and you are interested in reducing your monthly mortgage bill, mortgage recasting can be a great option for you. In this article, we will uncover how the mortgage recasting process works and which types of loans qualify to help you decide whether it is the right fit for your financial needs.
Continue to read to find out what mortgage recasting is and how it can save you money.
What is Mortgage Recasting, and How Does it Work?
To simplify it, mortgage recasting is the process of reducing the balance of your mortgage through a large lump-sum payment and making smaller monthly payments until your loan is paid off. Unlike mortgage refinancing, mortgage recasting will not change your loan term or your interest rate. You will have a lower monthly payment, and you will save on interest payments over the lifespan of a loan. If the lender that you work with does not offer recasting, you can opt to make a lump-sum payment on your mortgage on your own. In doing this, the loan balance you have will be decreased, but the monthly payment will stay the same. You will be able to pay off your loan early on if you should go this route.
Follow the following steps to recast your mortgage:
- Contact your Lender to See What you are Eligible For. Not all lenders will choose to offer mortgage recasting, so it is important to first confirm the availability with lenders you are considering. There are types of mortgages that are not eligible for recasting, and your lender should be able to tell you if your mortgage is eligible.
- Save Money for an Extra Payment. When confirming whether or not your mortgage can be recast, it is important to find out if your lender has a minimum lump-sum payment. Based on the requirements of the lender's mortgage recast, save money for the lump-sum payment before continuing with the process.
- Make a Request to Recast Your Loan. When you decide you are ready to proceed with a recasting, submit a formal request to your lender. There is a fee that might be charged for recasting, but it will vary. The fee is lower than what you might pay to refinance your home loan. Once approved, make your lump-sum payment against your outstanding mortgage balance.
- Continue with the Payments. After your mortgage loan is recast, the monthly loan payment will be lower based on the remaining balance, of course. The recasting process can take many weeks to complete once you have made your payment, and it is important to continue regular payments in the meantime. Once notifications that your mortgage has been recast, start making newly calculated payments.
Different Types of Loans that Can Be Recast
If you are looking to save on your monthly mortgage payments while keeping your current interest rate, mortgage recasting can be the best alternative to refinancing. That said, not all lenders offer the same services, and not all loans are eligible for recast. Even if your mortgage is eligible to recast and the lender offers the service, it might not be the best fit for your unique financial situation. Before recasting, consider the following:
- Financial Circumstances: If you have a large amount of cash on hand, you might be interested in recasting your mortgage. It is wise to consider whether you may need the money for other expenses while evaluating if there have been changes like reduced income that make you ineligible.
- Creditworthiness. A main perk of mortgage recasting is that it results in lower monthly mortgage payments. However, if the credit score improves since you took out a mortgage, you might qualify for a lower interest rate, and in this case, refinancing your mortgage can save you more money when extending the loan term and reducing the monthly payment.
- Current Standing Interest Rate. If mortgage rates are lower than when you first mortgaged your home, it can make more sense to refinance instead of recast.
Pros and Cons of Mortgage Recasting
There are many advantages and disadvantages to always consider before deciding if mortgage recasting is the best fit for you.
Pros of Mortgage Recasting
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- No credit appraisal or check.
- Interest rates will not be increased.
- The monthly principal payment will be reduced.
- Lower fees when refinancing.
Cons of Mortgage Recasting
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- VA, FHA, and USDA loans are ineligible.
- A large lump-sum payment is required.
- An administrative fee applies.
- The loan won't be paid off early.
Conclusion
When it comes to mortgage recasting, it can be a great option if you can afford a large upfront payment to reduce the payment and lifetime interest costs on a qualifying jumbo or conventional mortgage. The lengthy underwriting process of a mortgage refinance can be avoided entirely, especially if you don't qualify for a lower interest rate with an unextended repayment period. Mortgage refinancing can help you save more money in the long run, which is perfect for those who are looking to stay in a house long-term. Trust the professionals at Coastal Realty Group to guide you in finding and settling down in your dream home in the many great residential neighborhoods that make up the Forgotten Coast of Florida today!
