Reduce Your Mortgage Payments: Understanding Mortgage Recasting
If you purchased your home when interest rates were high, now might be the perfect time to consider a mortgage refinance or recast. With interest rates on the decline, millions of homeowners have the opportunity to lower their monthly payments without the hassle of refinancing.
What Is A Mortgage Loan Recast?
A mortgage recast is a process that allows borrowers to make a large lump-sum payment towards their principal balance, resulting in reduced monthly payments. Unlike refinancing, a recast keeps the interest rate and loan term unchanged, but recalculates monthly payments based on the lower principal balance.
Example Of A Mortgage Recast
Imagine you have a $1,000,000, 30-year fixed mortgage at 6.5% interest. After making a lump-sum payment of $200,000 towards the principal balance, your new monthly payment would be $5,148.92, significantly lower than the original $6,320.37.
Advantages of Mortgage Recasting Over Refinancing
- Reduced Payment: Lower your monthly payments without changing the interest rate or term.
- No Appraisal Needed: Save on appraisal costs compared to refinancing.
- No Credit Check: Qualify for lower payments without meeting credit score requirements.
- Pay Down Your Loan Quicker: Pay off your mortgage faster while reducing monthly payments.
Disadvantages of Mortgage Recasting Over Refinancing
- Requires Lots of Cash: Minimum amounts for recasting can be high, limiting investment opportunities.
- Doesn’t Reduce Mortgage Term: Loan term remains the same; refinance for shorter terms or extra payments to reduce.
- Your Interest Rate Stays The Same: Lower payments but unchanged interest rates may not be ideal in declining rate environments.
Letting An ARM Reset Is Similar To A Recast
Allowing an Adjustable Rate Mortgage (ARM) to reset can result in lower monthly payments without fees. By making additional principal payments, you can further decrease your payment amount when the ARM resets.
Having Strong Cash Flow And An ARM Is A Good Combo
If you have good cash flow, an ARM could be a smart choice. Paying down extra principal can lead to lower payments without the need for a recast.
Reader Questions
Have you considered recasting your mortgage? What were your reasons, fees, and experience with the process?
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