How Soon Can You Recast a Mortgage?

Mortgage recasting offers homeowners a financial tool to adjust their mortgage payments without undergoing a complete refinance. This process can be beneficial for individuals who have received a significant sum of money and wish to use it to reduce their monthly housing expenses.

What is Mortgage Recasting?

Mortgage recasting involves making a substantial lump-sum payment directly to the principal balance of an existing home loan. After this payment is applied, the lender recalculates the monthly mortgage payments based on the new, lower principal amount. This recalculation is known as re-amortization, spreading the reduced balance over the remaining original loan term and at the same interest rate. The goal of recasting is to lower the monthly payment without altering the loan’s interest rate or its original maturity date.

This process differs significantly from refinancing, which replaces the existing mortgage with an entirely new one. Refinancing typically involves new closing costs, a new interest rate, and often a new loan term, requiring a comprehensive application and underwriting process. In contrast, recasting is a simpler administrative procedure that keeps the current interest rate and loan term intact, avoiding many of the expenses and complexities associated with a full refinance. Recasting allows borrowers to capitalize on a sudden influx of cash, such as an inheritance or a large work bonus, to achieve immediate payment relief.

Key Eligibility Criteria for Recasting

Eligibility for mortgage recasting is not universal and depends heavily on the specific policies of individual lenders. Many lenders require a certain period of “loan seasoning,” meaning the mortgage must have been in place for a minimum number of months, often requiring at least two consecutive on-time payments before a recast can be considered.

A significant financial requirement for recasting is the commitment of a minimum lump-sum payment towards the principal. Lenders typically require a substantial amount, often ranging from $5,000 to $10,000 or more, to make the re-amortization process administratively worthwhile. It is important to confirm the specific minimum amount with your mortgage servicer.

Not all loan types are eligible for recasting. Conventional loans are the most common type of mortgage that can be recast. Government-backed loans, such as those insured by the Federal Housing Administration (FHA), the Department of Veterans Affairs (VA), and the U.S. Department of Agriculture (USDA), are typically not eligible for recasting. Some lenders may also exclude jumbo loans from their recasting programs.

Lenders also assess the borrower’s payment history as part of the eligibility criteria. A consistent record of on-time mortgage payments is typically a prerequisite for approval. Furthermore, loans that have undergone a mortgage modification are often ineligible for recasting, as modifications usually involve changes to the loan terms due to financial hardship. It is important to verify all specific requirements directly with your mortgage servicer.

Steps to Recast Your Mortgage

Once you have determined that you meet the general eligibility requirements, the first step to recasting your mortgage is to contact your mortgage lender or servicer. Inquire about their specific recasting program, as not all lenders offer this option, and confirm their policies, fees, and any required forms or applications.

After confirming your eligibility and understanding the lender’s requirements, you will typically need to submit a formal request or application for recasting. This process is generally less cumbersome than a refinance, often not requiring a credit check or a home appraisal. Following the application, you will proceed with making the required lump-sum principal payment.

Upon receiving and processing your lump-sum payment, the lender will then re-amortize your loan based on the reduced principal balance. This recalculation will result in a new, lower monthly payment amount, while the original interest rate and remaining loan term stay the same. The lender will then provide you with a confirmation of your new payment amount and the effective date for these reduced payments. The entire recasting process, from initial inquiry to receiving the new payment schedule, typically takes approximately 45 to 60 days to complete, though during this waiting period, you should continue making your regular payments.