What Is Mortgage Recasting and How Does It Work?
Reduce your mortgage payments with recasting. Learn how this simple process re-amortizes your loan after a principal payment, without refinancing.
A mortgage recast allows homeowners to lower monthly mortgage payments without obtaining a new loan. It is initiated after a homeowner makes a substantial lump-sum payment towards their mortgage principal. The loan servicer recalculates remaining payments based on the reduced principal, keeping the original loan term and interest rate unchanged.
Understanding Mortgage Recasting
A mortgage recast involves re-amortizing a loan, where the lender recalculates the payment schedule based on a lower principal balance. Unlike a mortgage refinance, a recast does not involve a new loan, changing the interest rate, or extensive closing costs. The original loan term remains the same, ensuring the loan matures on its initial schedule.
A recast begins when a borrower makes a significant lump-sum payment directly to the mortgage principal. For instance, if a homeowner has a $200,000 mortgage at 5% interest over 30 years, their initial principal and interest payment might be around $1,073. After making a $50,000 principal payment, the remaining balance would be $150,000.
The lender then re-amortizes this $150,000 balance over the original remaining term of the loan (e.g., 28 years). This recalculation results in a lower monthly payment, as the same number of payments spread across a smaller outstanding principal. The purpose is to reduce the monthly payment’s financial burden, not to shorten the loan term or alter the interest rate.
Qualifying for a Mortgage Recast
Eligibility for a mortgage recast depends on the lender’s specific policies. Not all lenders offer this option, and terms vary significantly. Homeowners should inquire directly with their current mortgage servicer to determine if a recast is available.
Lenders require a minimum principal payment to initiate a recast, typically ranging from $5,000 to $10,000, or 5% to 20% of the original loan amount. This payment must be a direct principal reduction, separate from regular monthly payments. Conventional loans are the most common type eligible for recasting.
Government-backed loans (FHA, VA, USDA) typically do not permit mortgage recasting. Borrowers must be current on mortgage payments and maintain a good payment history to qualify. Some lenders may require the loan to have been in effect for a certain period (loan seasoning) before a recast can be considered.
Initiating a Mortgage Recast
To initiate a mortgage recast, homeowners should contact their mortgage servicer’s customer service or loan modification unit. This contact allows borrowers to confirm eligibility and understand lender requirements. The servicer will provide details on how to proceed.
Borrowers typically need to provide their loan account number and confirm the lump-sum principal payment’s date and amount. Lenders often have specific forms or written requests for a formal recast application. These forms can be obtained directly from the lender, often through their online portal or by mail.
Once documentation is submitted, the lender processes the request. Lenders charge a fee for a mortgage recast, typically ranging from $150 to $300. Inquire about this fee upfront during initial contact. The process timeline varies, typically taking a few weeks to two months from application submission to new payment schedule implementation.
Outcome of a Mortgage Recast
The immediate outcome of a successful mortgage recast is a reduced monthly mortgage payment. This reduction provides immediate relief by lowering the borrower’s recurring housing expense. The original interest rate and maturity date remain unchanged after the recast.
While the interest rate does not change, the total interest paid over the loan’s life will likely decrease. This occurs because the principal balance is significantly reduced from re-amortization, meaning less interest accrues on the outstanding balance over the remaining term. The re-amortization spreads the smaller principal across the same remaining payment period, leading to lower per-payment interest charges.
Following the recast, the lender issues a new amortization schedule. This schedule details the revised monthly payment amount and how principal and interest will be allocated over the remaining loan term. Homeowners should review this new schedule carefully and retain any confirmation documents provided by the lender, verifying successful recast implementation.