How Much Does It Cost to Recast a Mortgage?

Homeowners occasionally find themselves in a position to make a substantial principal payment on their mortgage, perhaps from an inheritance, bonus, or the sale of another property. This often leads them to consider how such a payment could reduce their monthly obligations. Mortgage recasting offers a financial option to adjust these payments without a complete refinance.

Understanding Mortgage Recasting

Mortgage recasting is a process where a lender recalculates a borrower’s monthly mortgage payments after a significant lump-sum payment has been made to the principal balance. This adjustment occurs without altering the original interest rate or the remaining loan term. The primary purpose of recasting is to lower the homeowner’s monthly payment, making the mortgage more manageable after a large financial contribution.

Unlike refinancing, recasting does not involve obtaining a new loan, nor does it typically incur new closing costs or change the interest rate. It also differs from a loan modification, which usually addresses financial hardship and involves more fundamental changes to the loan agreement.

How Recasting Affects Your Mortgage

After a substantial principal payment, recasting mathematically impacts the mortgage by establishing a new amortization schedule. This new schedule is based on the reduced principal balance. As a result, the monthly payment for principal and interest decreases.

For instance, if a homeowner had a remaining balance of $200,000 and made a $50,000 principal payment, the new monthly payments would be calculated on the reduced $150,000 balance for the remainder of the original loan term.

Direct Costs of Mortgage Recasting

The direct costs associated with recasting a mortgage are typically administrative or processing fees charged by the lender. These fees cover the recalculation of the loan and necessary updates to their records. The typical range for these costs is a few hundred dollars, often falling between $150 and $500, though specific amounts can vary by lender.

Some lenders may offer recasting without a fee, while others impose a flat charge for the service. These costs are considerably less expensive than the closing costs associated with a full mortgage refinance, which can include expenses such as new loan origination fees, appraisal fees, and title insurance, often amounting to 2% to 6% of the loan amount. Mortgage recasting offers a more cost-effective way to achieve lower monthly payments compared to a refinance.

The Recasting Process and Eligibility

Initiating the Recast

Initiating a mortgage recast typically involves contacting the current mortgage lender to inquire about their specific procedures and requirements. Borrowers usually need to make a significant lump-sum principal payment, if not already done, and then formally request the recast. The lender will then provide the necessary forms and guidance to complete the process.

Eligibility Requirements

Lenders often set specific eligibility requirements for recasting. A common condition is a minimum principal reduction amount, which can range from $5,000 to $10,000 or more. Recasting is primarily available for conventional loans, while government-backed mortgages like FHA, VA, or USDA loans are generally not eligible. Additionally, the mortgage must often be “seasoned,” meaning a certain number of payments have already been made, and the borrower must be current on all payments.