Is Recasting a Mortgage Loan a Better Option Than Refinancing?
Is Recasting a Mortgage Loan a Better Option Than Refinancing? Skip to content
Motley Fool Stock Advisor recommendations have an average return of 397%. For $79 (or just $1.52 per week), join more than 1 million members and don't miss their upcoming stock picks. 30 day money-back guarantee. Sign Up Now If you have a $400,000 mortgage at 4% interest for 30 years, your monthly principal and interest payments would be $1,910. If you pay the loan for 10 years, your remaining loan balance would be $315,136. A lump sum payment of 10% of the remaining loan balance would be $31,554, bringing the balance to $283,582. In this case, the monthly payments would reduce to $1,718. However, keep in mind that while saving $200 per month on your mortgage payment is a worthwhile goal, you will also have spent a significant amount of cash to achieve that reduction in payment. Of course, lenders do charge a small fee for loan recasting, which is often as low as $250.
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By Michele Lerner Date September 14, 2021FEATURED PROMOTION
While many homeowners are familiar with the option of refinancing their mortgage, not all homeowners understand loan recasting. This may be because not all lenders offer recasting or re-amortizing, and not all borrowers are eligible. However, the process could save you money in two ways: by reducing your monthly mortgage payment, and by allowing you to avoid the cost to refinance. Essentially, a loan recast means that while your interest rate and your loan term remain unchanged, your monthly mortgage payment is reduced to reflect your actual current loan balance. For example, if you’re 6 years into a 30-year mortgage, once you recast your loan, you will still have 24 years remaining to pay it off. For recasting to work, lenders require an additional lump sum payment to reduce your balance. The size of that additional payment impacts how much you can save with a loan recast. However, instead of recasting, you could pay a lump sum toward your existing loan, which would decrease your balance, but not reduce your monthly mortgage payment.How Loan Recasting Works
Loan recasting can make sense if you inherit money (or receive a significant bonus at work) and wish to apply it to the balance on your mortgage. Because you reduce the balance ahead of schedule, you ultimately will pay less interest. This then enables lenders to recast your loan, or recalculate your monthly mortgage payment. Individual lenders have different requirements for loan recasting. For example, some lenders require a lump sum payment of $5,000 or 10% of the loan – whichever is greater – to reduce the balance before qualifying someone for a loan recasting.Motley Fool Stock Advisor recommendations have an average return of 397%. For $79 (or just $1.52 per week), join more than 1 million members and don't miss their upcoming stock picks. 30 day money-back guarantee. Sign Up Now If you have a $400,000 mortgage at 4% interest for 30 years, your monthly principal and interest payments would be $1,910. If you pay the loan for 10 years, your remaining loan balance would be $315,136. A lump sum payment of 10% of the remaining loan balance would be $31,554, bringing the balance to $283,582. In this case, the monthly payments would reduce to $1,718. However, keep in mind that while saving $200 per month on your mortgage payment is a worthwhile goal, you will also have spent a significant amount of cash to achieve that reduction in payment. Of course, lenders do charge a small fee for loan recasting, which is often as low as $250.