Can I Recast My Mortgage & How to Do It

Mortgage recasting offers homeowners a way to adjust their monthly mortgage payments without undergoing the extensive process of refinancing. It involves applying a significant lump sum payment to the outstanding principal balance of an existing home loan. This reduces the principal, leading the lender to recalculate the monthly payment based on the new, lower balance. The original interest rate and remaining loan term remain unchanged, providing financial flexibility for those seeking to reduce housing expenses.

What Mortgage Recasting Is

Mortgage recasting is a process where a homeowner makes a large, one-time payment to reduce the principal balance of their existing mortgage. Following this payment, the lender re-amortizes the loan, recalculating the monthly payment amount over the remaining original loan term, using the same interest rate. This directly leads to a lower monthly payment because interest is charged on a significantly decreased principal.

This process differs fundamentally from refinancing, which involves replacing the current mortgage with an entirely new loan, often with a new interest rate and a new loan term. Refinancing typically incurs substantial closing costs, including origination fees, appraisal fees, and other charges. In contrast, recasting keeps the existing loan agreement intact, avoiding new loan applications, credit checks, or property appraisals. Recasting also stands apart from a loan modification, which usually involves altering loan terms due to financial hardship and can affect a borrower’s credit.

Eligibility and Lender Considerations

Eligibility for mortgage recasting depends on specific lender requirements, as not all financial institutions offer this option. A primary criterion is a minimum lump sum principal payment, typically ranging from $5,000 to $10,000, though some lenders require higher amounts or a specific percentage of the original loan balance. This payment must directly reduce the principal.

The type of mortgage loan also affects eligibility. Conventional loans are generally eligible for recasting, making this a common option for many homeowners. However, government-backed loans, such as those insured by the Federal Housing Administration (FHA), guaranteed by the Department of Veterans Affairs (VA), or offered by the United States Department of Agriculture (USDA), are typically not eligible for recasting. Some jumbo loans and certain loan structures like interest-only mortgages or Option ARMs are also excluded.

Lender policy is another factor, as recasting is at the discretion of individual mortgage servicers. Lenders may have specific requirements regarding the loan’s age or the borrower’s payment history. Borrowers must be in good standing with their mortgage, demonstrating consistent, on-time payments to qualify. Some lenders may also require a certain level of equity in the property before approving a recast request.

The Application Process

Initiating a mortgage recast begins with contacting the mortgage servicer or lender to confirm their specific recasting program and requirements. This initial communication clarifies if recasting is an option for your loan and what criteria apply. The lender will provide details on their process and any necessary forms.

The application involves completing a formal request form provided by the lender. Borrowers will also need to demonstrate proof of funds for the lump sum payment, ensuring the amount is available. A current mortgage statement can assist in verifying loan details during the application.

Once the application is submitted and approved by the lender, the lump sum principal payment must be made. This payment is typically submitted via wire transfer or certified check. After the payment is received and applied, the lender proceeds with the re-amortization process. The entire process, from initial contact to receiving a new payment schedule, can take 45 to 90 days. Upon completion, the borrower receives official confirmation of the recast, including a new amortization schedule and the updated, lower monthly payment.

Understanding the Financial Changes

Successful mortgage recasting results in direct financial changes for the borrower. The most immediate impact is a reduced monthly mortgage payment. This occurs because the lump sum payment lowers the principal balance, and the lender recalculates the payment over the remaining original loan term at the original interest rate. For instance, a $50,000 lump sum payment on a $300,000 mortgage at 6.5% could reduce the monthly payment from $1,887.76 to $1,573.05.

While the interest rate remains unchanged, the total interest paid over the loan’s life will be less. This saving occurs because interest is calculated on a smaller principal balance, meaning less interest accrues over time despite the static interest rate.

A mortgage recast does not alter the original loan term. If a borrower had 20 years remaining on their mortgage, they will still have 20 years remaining after the recast, with lower monthly payments. The interest rate locked in at the time of the original loan also remains the same, allowing borrowers to retain a favorable rate if market rates have increased since their initial mortgage origination.