How Many Times Can You Recast a Mortgage?
Navigate mortgage recasting: a strategic way to lower monthly payments. Understand its application and the potential for repeated use.
Mortgage recasting offers homeowners a financial tool to adjust their monthly mortgage payments without the need for a full refinance. It allows a homeowner to reduce their regular payment by applying a large, additional principal payment directly to their outstanding loan balance. This process is distinct from other mortgage modifications, focusing solely on the payment amount while maintaining the original interest rate and loan term.
Understanding Mortgage Recasting
Mortgage recasting, also known as a mortgage re-amortization or principal curtailment, recalculates your monthly payment after a substantial lump-sum principal payment. The lender then re-spreads the remaining payments over the original loan term using the existing interest rate. This reduces your monthly payment without altering the loan’s structure or extending its duration.
Recasting differs significantly from refinancing, which involves obtaining an entirely new loan to pay off your current one. Refinancing typically entails new closing costs, such as origination fees, appraisal fees, and title insurance, amounting to 2% to 5% of the new loan. In contrast, recasting maintains the existing interest rate and loan term, avoiding the extensive paperwork and costs of a new loan. The primary motivation for a recast is to lower the monthly payment burden after a significant principal reduction, freeing up cash flow.
Eligibility for Mortgage Recasting
To qualify for mortgage recasting, homeowners typically meet criteria set by their loan servicer. A common requirement is a minimum lump-sum principal payment, often ranging from $5,000 to $10,000. This payment must be in addition to your regular monthly mortgage installment.
Loan type also plays a significant role. Conventional mortgages are generally most amenable to recasting, while government-backed loans (FHA, VA, USDA) typically do not offer this option. The loan must also be in good standing, with a consistent history of on-time payments. Homeowners should contact their loan servicer to inquire about their policies and determine if their loan type qualifies.
The Recasting Application Process
Once eligibility is confirmed, the mortgage recast application process is generally straightforward and less complex than a full refinance. The first step is contacting your loan servicer to express interest and obtain their specific application requirements. They will provide details on the minimum lump-sum payment and any associated administrative fees.
After gathering information, you will typically make the required lump-sum principal payment to your mortgage account. Following this, you may need to submit a formal request or a specific recasting application form from your servicer. Some lenders charge a small administrative fee for processing the recast, typically a few hundred dollars. Upon submission, the lender will review your request and, if approved, provide a new amortization schedule reflecting your reduced monthly payment.
How Often You Can Recast
The frequency of mortgage recasting is entirely at the discretion of the individual loan servicer or lender. Some lenders allow multiple recasts over the loan’s life, provided eligibility criteria, such as the minimum lump-sum principal payment, are met each time.
Other lenders may restrict recasting to a limited number of times, perhaps once or twice. Some servicers might also impose a waiting period between recasts, such as six months or a year. Each subsequent recast typically requires a new lump-sum payment and may incur an additional administrative fee. Homeowners should contact their specific loan servicer to understand their policy regarding recasting frequency.