When Can I Recast My Mortgage to Lower My Payment?

A mortgage recast offers homeowners a way to adjust their loan payments without undergoing a full refinance. This process involves making a substantial one-time payment toward your mortgage principal, after which your lender re-amortizes the remaining balance. The goal of a mortgage recast is to reduce your monthly principal and interest payments, providing financial flexibility. It differs from refinancing because it does not involve taking out a new loan or changing your existing interest rate.

Eligibility for Mortgage Recasting

Determining eligibility for a mortgage recast begins with understanding that it is not universally offered and is at the discretion of individual lenders. Many lenders require a significant lump-sum payment towards the principal balance as a prerequisite for recasting. This payment ranges from $5,000 to $10,000, or it might be a specified percentage of the original loan balance.

The type of loan you possess also impacts eligibility, as recasting is available for conventional loans. Government-backed mortgages, such as FHA, VA, or USDA loans, are not eligible for recasting. Lenders also require a strong history of on-time payments, and the loan must be in good standing. Some may also stipulate a minimum period since the loan’s origination or a certain amount of equity in the property before considering a recast.

The Recasting Process

Initiating a mortgage recast begins with contacting your mortgage servicer directly to confirm their recasting policies and specific requirements. Your lender will provide details on any necessary forms, the minimum lump-sum payment required, and any associated fees. This conversation helps in understanding your lender’s unique procedures.

After confirming the requirements, you will make the necessary lump-sum payment towards your principal balance. This payment can be made through various methods, such as a check, wire transfer, or their online payment system. Following the payment, you will submit any required application forms or written requests provided by the lender to formalize your request. Lenders charge a processing fee for recasting, which is a few hundred dollars, ranging from $150 to $500. The processing time for a recast can vary, but it takes several weeks, between 45 to 60 days, for the new terms to take effect.

Understanding Your New Mortgage Terms

Upon successful completion of a mortgage recast, the outcome is a reduced monthly principal and interest payment. This occurs because the substantial lump-sum payment lowers your outstanding loan balance, and this new, smaller balance is then spread across the original remaining loan term.

Your original interest rate and the remaining duration of your loan term remain unchanged. The process solely adjusts the amortization schedule to reflect the decreased principal. Your lender will provide a new amortization schedule detailing how each future payment is applied to the reduced principal and interest. Unlike refinancing, recasting avoids the need for a new loan application, credit checks, or extensive closing costs, which can be significant expenses associated with obtaining a new mortgage.