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At Bankrate we strive to help you make smarter financial decisions. While we adhere to strict editorial integrity, this post may contain references to products from our partners. Here's an explanation for how we make money. Bankrate logo The Bankrate promise
Founded in 1976, Bankrate has a long track record of helping people make smart financial choices. We’ve maintained this reputation for over four decades by demystifying the financial decision-making process and giving people confidence in which actions to take next. Bankrate follows a strict , so you can trust that we’re putting your interests first. All of our content is authored by and edited by , who ensure everything we publish is objective, accurate and trustworthy. Our mortgage reporters and editors focus on the points consumers care about most — the latest rates, the best lenders, navigating the homebuying process, refinancing your mortgage and more — so you can feel confident when you make decisions as a homebuyer and a homeowner. Bankrate logo Editorial integrity
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You have money questions. Bankrate has answers. Our experts have been helping you master your money for over four decades. We continually strive to provide consumers with the expert advice and tools needed to succeed throughout life’s financial journey. Bankrate follows a strict , so you can trust that our content is honest and accurate. Our award-winning editors and reporters create honest and accurate content to help you make the right financial decisions. The content created by our editorial staff is objective, factual, and not influenced by our advertisers. We’re transparent about how we are able to bring quality content, competitive rates, and useful tools to you by explaining how we make money. Bankrate.com is an independent, advertising-supported publisher and comparison service. We are compensated in exchange for placement of sponsored products and, services, or by you clicking on certain links posted on our site. Therefore, this compensation may impact how, where and in what order products appear within listing categories. Other factors, such as our own proprietary website rules and whether a product is offered in your area or at your self-selected credit score range can also impact how and where products appear on this site. While we strive to provide a wide range offers, Bankrate does not include information about every financial or credit product or service. Homeowners who want to shave off dollars from their monthly mortgage payment, as well as save money on interest, might consider a mortgage recast. This strategy won’t help you , but it can make your monthly payments more manageable while reducing the amount you’ll pay in interest. What is mortgage recasting
A mortgage recasting, or loan recast, is when a borrower makes a large, lump-sum payment toward the principal balance of their mortgage and the lender, in turn, . This means that your loan is reduced to reflect the new balance. Recasting cuts your monthly payments and the amount of interest you’ll pay over the life of the loan. It does not, however, affect your interest rate or the terms of your loan. How mortgage recasting works
In order to do a loan recast, borrowers must make a large lump-sum payment toward the loan principal. Lenders usually require $5,000 or more to recast a mortgage. The remaining balance is then amortized reduce the monthly payments. Typically, you have to pay a fee to recast your mortgage. The fee varies by lender, but usually doesn’t exceed a few hundred dollars. That fee can be worth it, however, when compared with your potential interest savings. Recasting not only results in lower monthly payments, but borrowers will also pay less interest over the life of the loan. For example, if your 30-year mortgage carries a principal balance of $200,000 with a 5 percent interest rate, you might pay $1,200 per month. If you pay $50,000 in a lump sum to recast your mortgage, plus a $250 recasting fee, you’ll end up saving almost $35,000 in interest payments and about $300 per month in monthly mortgage payments. (Of course, the money you sink into the recast won’t be available for investing or other purposes.) Keep in mind, recasting doesn’t reduce the term of your mortgage — just how much you pay each month. Mortgage recasting qualifications and availability
Before you get excited about , first make sure your lender offers recasting — many don’t. It’s also not something that’s normally advertised, but most of the big banks offer it. You’ll likely need to meet specific equity and principal reduction standards to qualify for a recast. Your payment history could also affect your options. Not all mortgages qualify for recasting. Government loans, like and , can’t be recast. Mortgage recasting vs refinancing
There’s a big difference between recasting a mortgage and , even though both can help borrowers save money. Recasting is easier than refinancing because it requires only a lump sum of money in exchange for lower monthly payments. With recasting, you’re keeping your existing loan, only adjusting the amortization. You wouldn’t be able to get a lower interest rate with recasting, like you might with refinancing. On the other hand, if your interest rate is already low then refinancing could have a negative effect — especially if the current rates are higher. Refinancing, conversely, requires that you apply for a brand-new loan and pay all the . The new loan would pay off your existing loan, so you could end up with a new mortgage as well as a new interest rate. Borrowers typically do this to get a lower interest rate or to go from an adjustable-rate mortgage to a fixed-rate mortgage. If you already have a fixed-rate mortgage with a low interest rate, then a refi wouldn’t help you. On the other hand, if you have a low-interest, 30-year fixed-rate mortgage and want lower monthly payments, then you might consider a recast. Benefits of mortgage recasting
Recasting has some appeal because it’s fairly easy to do and it’s a relatively inexpensive way to lower monthly payments if you have the cash. Here are a few reasons you might want to consider recasting your existing mortgage: Lower your monthly payments by making one lump sum Avoid having to requalify for a new loan Keep your interest rate if you currently have a low interest rate Drawbacks of mortgage recasting
The biggest financial drawback of recasting is that you’re putting a large sum of money into equity. These are a few reasons you might want to rethink recasting: Doesn’t shorten the length of your mortgage Your interest rate stays the same, a disadvantage if you have a higher interest rate More of your cash is tied up in equity Lender charges a fee, typically no more than a few hundred dollars In the current climate, with relatively low mortgage rates and a strong market, a loan recast might not make sense for some. How to calculate your mortgage recast
If a mortgage recast is the right move for your finances, make sure the math checks out. You can estimate your new monthly payment after the recast with the help of Bankrate’s . If you still have questions about your potential savings, consult with your mortgage lender. A loan officer can help you run the numbers and understand what the best strategy is for your situation. With additional reporting by Sarah Sharkey Learn more
SHARE: Sarah Sharkey is a contributing writer for Bankrate. Sarah writes about a range of subjects, including banking, savings tips, homebuying, homeownership and personal finance. Suzanne De Vita is the mortgage editor for Bankrate, focusing on mortgage and real estate topics for homebuyers, homeowners, investors and renters. Related Articles