Recasting mortgage payments is a little-known gem when it comes to homeowner finances. It’s often viewed as a method to lower monthly payments without extending the length of your loan term. But what exactly is mortgage recasting? Are there any disadvantages to it? What about my interest rates? Will my overall loan balance increase or decrease?
Here’s a quick guide to understanding mortgage recasting and whether it’s right for you:
When a homeowner recasts their mortgage, they pay off a lump sum of their current loan balance to redo the amortization of their monthly mortgage payments. When their monthly payments are put up to be amortized again, it simply breaks down the remaining balance of the loan - after the lump sum payment - into more manageable mortgage payments.
The loan itself doesn’t receive any special treatment like new loan repayment terms or interest rate adjustment. It simply breaks the remainder of the loan down into new monthly payments, while everything else stays the same.
As with most financing or loan options, there are a few drawbacks. The biggest one is producing the lump sum of cash to qualify for and cover recasting your mortgage payments. This requirement is typically set by your lender, who will also charge a small fee to recast the mortgage balance.
Apart from needing a large sum of cash, your interest rate is likely to stay the same. This can be both a pro and a con, depending on your mortgage’s interest rate.
If you were hoping to stretch out your payments for a little longer, and possibly lower them further, recasting mortgage payments may not be for you. When a mortgage is recast, the loan repayment term stays the same, and the amount of the monthly payment is directly related to the lump sum payment.
Your principal balance will decrease by the lump sum payment amount. For example, if you have approximately $175,000 left on your principal balance, and you pay $25,000 for your recasting, your principal balance will decrease to $150,000. Your monthly payment will then come from your new principal balance over the remaining life of the loan.
Recasting mortgage balances is a great way to save a little extra cash over the rest of your loan’s life. However, it’s best to discuss your financial situation with your mortgage lender to ensure they offer mortgage recasting, since many providers may not.
Hi, I'm Evelyn Forston and I'd love to assist you! Life is full of transitions… it changes, and we change with it. Whether it’s coming together with another person to spend your life together, loved ones moving on or moving in, I’m here to help you! I understand it. From picking out my favorite items to keep, to filling a home with furniture, I know what it’s like. I’ve done it and I understand it. I know what it’s like to buy your first home by yourself, to sell your home, to move to a bigger home and build a life with someone. If you’re ready to downsize and move to an apartment or smaller home, I’m here to help! I've done that as well! If you want a home that is your sanctuary or a lively home teaming with activity, my goal is to help you satisfy your functional, financial and aesthetic needs in a home. I’m here for you, from your first home to forever home!
Additionally, I love aiding my clients in buying/selling/leasing commercial property. Reach out to me if you need a professional to assist you!
Call me at 205-901-6756
I'd be honored to put my over 15 years of multiple aspects of Real Estate experience to work for you!