What are the disadvantages of recasting a mortgage?
Drawbacks of Recasting
While your minimum monthly payment remains higher, paying down the principal requires less money upfront than recasting and you can make extra monthly payments. Recasting is better when you have a financial windfall or large cash reserves but want lower ongoing repayments.
A mortgage recast is a helpful tool to get a lower monthly payment. It doesn't require you to apply for a new loan and the service fee is relatively low. It's a straightforward way to put extra cash toward your principal and enjoy an immediate lower payment for the rest of your loan.
Recasting is less expensive and easier to get approved for, and it reduces your monthly expenses, but it does not change your loan terms or interest rate. Refinancing is more expensive and involves closing costs, but saves you significant money if you get a lower interest rate and lower monthly payment.
Your current interest rate stays the same so, at times when you can't refinance into a loan with a lower interest rate, a recast can still make sense. Lower fees. Most lenders charge a $150 to $500 fee for a mortgage recast, which is much cheaper than paying refinance closing costs.
How does recasting a mortgage work? Recasting your mortgage doesn't mean you'll pay off your mortgage early. Your new payoff schedule matches what it would have been originally but with each monthly payment adjusted to reflect the new balance.
By paying a lump sum and recasting your mortgage, you can reduce your housing costs. By contrast, if you submit a lump sum without recasting, you lower your balance but your monthly payments will remain the same.
Making additional principal payments will shorten the length of your mortgage term and allow you to build equity faster. Because your balance is being paid down faster, you'll have fewer total payments to make, in-turn leading to more savings.
You must make at least two consecutive monthly payments at your current payment amount before a loan can be recast. There may be a small fee (typically around $250) associated with the recast. There is not typically a limit on how many times someone can recast their loan.
A loan recast is another great approach to removing PMI. If a recast drops your Loan-To-Value ratio (LTV) to 80% or below, your loan will become eligible for PMI removal within 30 days. See other side for FAQ.
How long does it take to recast a mortgage?
Although it can take 45 to 60 days for a mortgage lender to complete a recast, it is relatively straightforward. Conveniently, as long as your loan is in good standing, the lender will not require a credit check, home appraisal, or income verification.
Not all lenders offer mortgage recasts, and not all loans are eligible for a recast (for example, FHA/VA and USDA loans do not permit a recast option). Additionally, there may be restrictions regarding how much you owe, how much you've paid and your payment history.
Paying a lump sum off your mortgage will save you money on interest. It will also help you clear your mortgage faster than if you spread your overpayments over a number of years. But this option holds risk. If you needed the money back in an emergency, such as job loss, it could be difficult.
“Government-backed loans such as FHA or VA loans are not eligible for recasting,” says Yates. Your bank must offer recasting. Most larger banks like Wells Fargo or Bank of America offer a recast, but smaller local banks or credit unions may not offer the option. You must have enough money.
| Product | Interest rate | APR |
|---|---|---|
| 30-year fixed-rate | 6.670% | 6.750% |
| 20-year fixed-rate | 6.393% | 6.498% |
| 15-year fixed-rate | 5.884% | 6.015% |
| 10-year fixed-rate | 5.716% | 5.926% |
A recast mortgage is a process of reevaluating monthly mortgage payments by taking the loan's balance and dividing it by the remaining months left on the mortgage term. In doing so, homeowners ahead of schedule may be eligible to reduce their monthly payments.
Paying off a mortgage early is often a consideration for homeowners looking to retire early or stay in their homes for an extended time. Ultimately, the decision comes down to personal preference and whether the benefits outweigh the costs. Consider any prepayment penalty and the potential tax consequences.
Making extra payments of $500/month could save you $60,798 in interest over the life of the loan. You could own your house 13 years sooner than under your current payment. These calculations are tools for learning more about the mortgage process and are for educational/estimation purposes only.
- Setting a Target Date. ...
- Making a Higher Down Payment. ...
- Choosing a Shorter Home Loan Term. ...
- Making Larger or More Frequent Payments. ...
- Spending Less on Other Things. ...
- Increasing Income.
- Refinance your mortgage. ...
- Make extra mortgage payments. ...
- Make one extra mortgage payment each year. ...
- Round up your mortgage payments. ...
- Try the dollar-a-month plan. ...
- Use unexpected income. ...
- Benefits of paying mortgage off early.
At what point is PMI removed?
Even if you don't ask your servicer to cancel PMI, in general, your servicer must automatically terminate PMI on the date when your principal balance is scheduled to reach 78 percent of the original value of your home.
Recasting your mortgage is when you put a lump sum toward the principal after you've closed on your home. This can lower your monthly payments without closing costs or lengthening your loan terms.
Home loan recasts are typically only allowed once during a mortgage's lifetime so plan accordingly. To get the most benefit from a mortgage recast, consider waiting until you have a cash windfall. This will allow you to pay a larger lump sum – and reduce your mortgage sooner.
After you make your final mortgage payment, your loan servicer typically sends you a packet of papers, known as the mortgage release or mortgage satisfaction document, attesting to the fulfillment of your loan contract and the removal of the lender's lien on your house.
If you are under 45, it's difficult to argue that your dollars would be better served paying off your mortgage unless you are on Step 9, pre-pay low-interest debt. You should aim to be completely debt-free by retirement, and after age 45 you can begin thinking more seriously about pre-paying your mortgage.
