Loan recasting is a method your lender can use to redistribute your overall mortgage payment amongst the remaining time left on the loan. . (Photo: Creative Commons)

Michaela Phillips, Guaranteed Rate, Inc.

Michaela Phillips, Guaranteed Rate, Inc.

Most homeowners are familiar with the possibility of refinancing their mortgage, but few are aware that a loan recast is also an option that assists homeowners in lowering their monthly mortgage payment. Significant events are bound to occur throughout the course of a 30-year loan. Perhaps a homeowner has inherited a large sum of money or earned a substantial return from an investment and they now want to pay down the principle of their mortgage.

However, typical mortgages have amortization, meaning, when the borrower pays more than their scheduled monthly payment toward the principle, the monthly payment stays the same. A loan recast could be the best possible option for homeowners to lower their monthly payment while still retaining the interest rate and term length. Read on to learn more about loan recasts and if they are the best option for you.

What is a Loan Recast?

Loan recasting is a method your lender can use to redistribute your overall mortgage payment amongst the remaining time left on the loan. This option is only possible when the borrower can pay a pre-determined portion of funds toward the overall principle. By decreasing the overall balance ahead of the schedule, borrowers also reduce the amount of interest paid throughout the course of the loan. This one-lump-sum payment allows your lender to recast the loan, thus recalculating your monthly mortgage payment to divvy up the remainder over the amount of time left on the loan’s term.

Recasting vs. Refinancing

In many cases, homeowners believe that if they pay off a large portion of their loan, they’ll need to refinance in order to see their monthly payment decrease. In fact, loan recasting accomplishes the same thing, but does not incur additional closing costs like refinancing sometimes does. The lender will re-amortize the mortgage, with the same interest rate, to reflect the months or years left and balance owed for the mortgage.

How Much Does a Loan Recast Cost?

On average, lenders charge anywhere from $300 – $500 to recast a home loan. However, not all lenders allow it. Borrowers should first consult with their lender to see if loan recasting is an option. The fee to recast a loan is a small price to pay when compared with the amount homeowners will save by lowering their monthly payment.

Is a Loan Recast Right for You?

Recasting may be the best option for you if your mortgage interest rate is lower than the current average rates. Recasting simply lowers your monthly payment. It does not change the length or interest rate of the loan. If you’re satisfied with your current terms but want to lower your monthly mortgage by paying a considerable portion of it off, then recasting is most likely a better option for you.

Working with a knowledgeable and experienced lender from the start can help homeowners save money in the long run.

By Michaela Phillips. Michaela is the Vice President of Mortgage Lending at Guaranteed Rate, Inc. Contact Michaela at 303.579.5517, e-mail michaela@michaelaphillips.com or visit michaelaphillips.com.
NMLS: 312874.