How Many Times Can I Recast My Mortgage?
Reduce your mortgage payments with recasting. Uncover the factors determining how often you can adjust your loan, based on lender rules.
A mortgage recast offers a way for homeowners to adjust their financial obligations. This process involves reducing the monthly mortgage payment without altering the original loan term or interest rate. It occurs after a borrower makes a substantial lump-sum payment towards the principal balance of their loan. This action aims to create a more manageable monthly housing expense.
Understanding Mortgage Recasting
Mortgage recasting, also known as re-amortization, allows a borrower to make a significant principal reduction payment. Following this payment, the lender recalculates the remaining balance and re-amortizes it over the original loan term. The monthly payment decreases to reflect the lower principal, while the interest rate and loan duration remain unchanged.
This process differs from refinancing, which involves securing an entirely new loan with new terms and potentially a different interest rate. Recasting avoids new closing costs, credit checks, or home appraisals, as it maintains the existing loan structure. Homeowners often consider recasting after receiving a financial windfall, such as an inheritance, a large bonus, or proceeds from the sale of another property, to lower their ongoing monthly expenses.
Lender Specific Policies and Limitations
The ability to recast a mortgage, and its frequency, depends entirely on the individual mortgage lender’s policies, as recasting is not a universal right. Most lenders require a minimum lump-sum payment to be applied to the principal, often ranging from $5,000 to $10,000, or a specific percentage of the remaining balance. Some lenders may not impose a strict minimum, though a small payment would not significantly impact the monthly obligation.
Lenders may also impose waiting periods between recasts, such as allowing only one recast every 12 months, or a limited number over the loan’s lifetime. A fee is charged for the service, which ranges from $150 to $500, covering administrative costs. Not all loan types are eligible for recasting; conventional loans are eligible, but government-backed loans, such as FHA, VA, and USDA loans, are not.
Steps to Initiate a Mortgage Recast
Initiating a mortgage recast begins with contacting your current mortgage servicer to confirm if they offer this option and to understand their specific eligibility requirements. This initial contact can be made through their customer service line or by checking their website for a dedicated recasting department. The lender will provide details on any minimum principal payment needed and associated fees.
Once eligibility is confirmed, the next step involves submitting the required lump-sum payment. This payment should be directed specifically to the loan’s principal balance, through a wire transfer, certified check, or an online payment method that allows for principal-only contributions. After the payment is made, a formal request for recasting is required, which might involve completing a specific form or sending a written request. The lender will then process the request, which can take 45 to 90 days, and subsequently issue a new amortization schedule reflecting the reduced monthly payment.