How mortgage recasting works and might save you money
Homeowners who want to shave off dollars from their monthly mortgage payment as well as save money on interest might consider a mortgage recast.
Fargo. Plus, not all mortgages qualify for recasting; some types of loans, like FHA loans and VA loans, can’t be recast.
Mortgage recasting vs. refinancing: There’s a big difference between recasting a mortgage and refinancing one, even though both can help borrowers save money. Recasting is easier than refinancing because it requires only a lump sum of money in exchange for lower monthly payments.
With recasting, you’re keeping your existing loan, only adjusting the amortization. You wouldn’t be able to get a lower interest rate with recasting, like you might with refinancing. On the other hand, if your interest rate is already low then refinancing could have a negative effect — especially if the current rates are higher.
Refinancing, conversely, requires that you apply for a brandnew loan and pay all the fees that go with it, such as closing costs and appraisal. The new loan would pay off your existing loan, so you could end up with a new mortgage as well as new interest rates.
People typically do this to get a lower interest rate or to go from an adjustable-rate mortgage to a fixed-rate mortgage. If you already have a fixed-rate mortgage with a low interest rate, then a refi wouldn’t help you. On the other hand, if you have a lowinterest, 30-year fixed-rate mortgage and want lower monthly payments, then you might consider a recast.
The biggest financial drawback of recasting is that you’re putting a large sum of money into equity. These are a few reasons you might want to rethink recasting:
■ It doesn’t shorten the length of your mortgage.
■ Your interest rate stays the same, a disadvantage if you have a higher interest rate.
■ More of your cash is tied up in equity.
■ Lender charges a fee, typically no more than a few hundred dollars, to recast a loan.
In the current climate, with relatively low mortgage rates and a strong market, a loan recast might not make sense for some.