What is a Mortgage Recast?

You know about refinancing, but have you heard of a mortgage recast?

If you want to lower your monthly payments, this may be the option for you.

A refinance loan is a beautiful thing.

If you’re unhappy with the current rate or term of your mortgage, refinancing helps you lock in a better rate, lower your monthly payments, and save a ton of money over the life of your loan.

Sounds amazing!

But what happens when interest rates are through the roof? People looking to save some cash or draw from their home’s equity have to think outside the box.

Enter the mortgage recast.

Casting light on the recast

Few homeowners know about this financing tool, yet it comes with a host of advantages.

According to Amy Barnes of Realtor.com, mortgage recasting is “rare, at least compared to the more typical way homeowners reduce their mortgage payments by refinancing. Nonetheless, it’s well worth considering in certain circumstances.”

This is especially true when interest rates are high. You might also consider a recast if you suddenly come into a large sum of money and don’t necessarily want to invest it.

Here’s how it works.

In a recast situation, the homeowner pays down a chunk of their principal. The lender then “recasts” or re-amortizes the mortgage based on the new balance. Unlike a refinance (which effectively replaces your loan with a new one), the original rate and term remain the same.

Story time!

A Tale of Two Mortgages

• For her original mortgage, Jill put down $100,000 and borrowed $400,000 to purchase a $500,000 home. At a rate of 5%, her monthly payment would be $2,754 a month.

• To lower her monthly payments, she applies for a recast and puts down another $50,000.

• Now that Jill owes less, the lender recalculates her monthly payments. For a 30-year fixed loan at 5% interest, she would now pay $2,486 (perhaps even less if she’s been paying for a long time).

• Jill enjoys an additional $268 in her pocket each month!

So, what else is there to know about recasting? Let Everest lead the way…

Recast Mortgages: A Review

What are the requirements?

• Your lender must offer recasting. While most large U.S. banks often do, small-town local banks and credit unions may not.

• To be approved for a recast, you must hold a conventional loan. For instance, FHA and VA loans are not eligible.

• The majority of banks will require a minimum sum in order to process a recast. Realtor.com cites $5,000 as the standard.

What are the pros?

• A recast is much simpler than a refinance. Applicants do not have to show income verification or credit history. As long as they have cash in hand, it’s a done deal.

• Because it’s so effortless, the recasting process is effortlessly quick. In most cases, you can finish the entire ordeal in less than 30 days.

• If you’re happy with your current rate and term, recasting lets you keep them while reducing your principal and payments.

• Fees are relatively low. By working with an experienced loan officer or financial professional, it’s easy to achieve your ideal financial goal.

• It’s possible to recast more than once, making this a convenient option if you save up more money down the line. 

What are the cons?

• As aforementioned, not every bank offers mortgage recast. It sounds great in theory, but depending on your situation, the option may be off the table.

• Your loan must be backed by Fannie Mac, Freddie Mac, or some other conventional institution. Otherwise, there’s a good chance you’re ineligible.

• For homeowners looking to reduce their interest rate or the life of the loan, refinancing may be a better tool. After a recast, the terms stay exactly the same.

• The liquid cash you put toward your principal could be better used for some other (more lucrative) investment.

Everest says: options open, wallet closed

What would you do with a

 lower mortgage payment?

The team at Everest Equity has A to Z refinance options.

Reach out to put more money in your pocket today!