What Is a Mortgage Recast and How Does It Work?

How Does Mortgage Recasting Work?

A mortgage recast involves making a lump sum payment and asking your lender to adjust your loan payment amount based on the new principal balance. 

If your loan is eligible for a mortgage recast, you can ask your lender how to qualify for mortgage recasting. The process always involves making a lump sum payment, but the size of the payment can vary by lender.  For example, you may be required to make a minimum payment of $5,000, $10,000, or more.

Once you make a lump sum payment, the lender recalculates your monthly payments based on the new lower balance. This reduces the amount you pay each month, but it doesn’t change your interest rate or other loan terms. You also don't need an appraisal or credit check. 

Mortgage Recast Eligibility Requirements

In general, government-backed loans, including FHA, VA, and USDA mortgages, are ineligible for recasting.  

With a conventional loan, your account must be current and in good standing, and in some cases, you will need a history of regular payments on the loan before initiating a recast. Some lenders also require a minimum amount of home equity. 

Costs for Recasting a Mortgage

The highest cost of recasting a mortgage is the lump sum payment you must make to be eligible to recast the loan.

Some lenders also charge an administrative fee, which is usually between $150 and $250. This is typically a much lower cost than refinancing because you are not paying for a new loan origination fee or an appraisal.

Mortgage Recast Example

When deciding whether to recast your mortgage, it’s best to look at the numbers to determine if it’s worthwhile. Here is a mortgage recast example based on a loan with a 6.5% interest rate:

Hypothetical example for illustrative purposes only; not a commitment to lend or an offer of currently available terms. Rates, payments, terms, and savings shown are hypothetical figures selected solely to illustrate how mortgage costs and terms can vary, and do not reflect an actual loan offer.

In this example, the borrower might be able to get their lender to recast their mortgage and get a new, lower monthly payment for principal and interest.

Mortgage Recast Pros and Cons

There are pros and cons to mortgage recasting that you should consider. Here are some of the biggest benefits and downsides.

A mortgage recast will not result in a lower interest rate. How much money recasting your loan saves you in total interest paid over time depends on how long the loan is held and your repayment behavior. 

Is Recasting Your Mortgage Right for You?

Recasting your mortgage is right for some borrowers, but it isn't right for everyone.

Recasting can make sense if you have a lump sum of money to pay on your mortgage and you want to lower your mortgage payment by asking your lender to reamortize your mortgage loan. But if you are hoping to lower your interest rate or pay off your loan as soon as possible, this option isn't the right approach.

Mortgage Recast vs. Extra Payments

Mortgage recasting and making extra mortgage payments are very different approaches. Recasting your loan allows you to make a lump sum payment to reduce your monthly payment. It will not usually result in early mortgage payoff because your lender reamortizes your loan over your loan’s remaining term. You still pay off your loan during the same time period, just with lower minimum required principal and interest payments. 

If your lender or the type of loan you have doesn’t allow a recast or if you don’t have a large lump sum but would still like to pay your mortgage faster and save interest without a full refinance, you may consider making extra or larger monthly payments without recasting. In this way, you will reduce your mortgage principal balance faster but will not reduce your minimum required monthly principal and interest payment. Since you are paying more principal with extra monthly payments, your loan will be repaid faster than your original amortization schedule, and you'll save on interest over time.

Mortgage Recast vs. Refinance

Recasting and refinancing are both options that might help you lower your monthly payment and save money on interest. 

Recasting requires a substantial one-time payment and does not allow you to change your interest rate or other loan terms.

Refinancing may allow you to lower your interest rate. It might lower your payment or save you money on interest but a refinance that extends your term, even with a lower interest rate, may result in total finance charges being higher over the life of the loan. Refinancing doesn’t require you to have a large amount of cash, although you will likely need to pay closing costs and meet your lender’s credit, income, and financial requirements to get approved.

Consider both options and decide which is the right choice for you. Remember that refinancing may increase the total finance charges you’ll pay over the life of the loan.

Mortgage Recasting FAQs

Still need to know more? Here are the answers to some mortgage recasting FAQs. 

How Long Does a Mortgage Recast Take?

The timeline for requesting a recast depends on your lender. It usually takes between 30 and 90 days starting from the time you make your lump sum payment until the time that you see your new lower monthly payment.

How Often Can You Recast Your Mortgage?

There's typically no limit to how often you can recast your mortgage, but each recast will require a lump sum payment, and you will potentially have to pay a fee. 

Can You Recast a VA, FHA, or USDA Loan?

You cannot recast a VA, FHA, or USDA loan. This process is not allowed for government-backed loans. You will need to refinance to lower your monthly payments.

Does Recasting Hurt Your Credit Score?

Mortgage recasting does not change your loan agreement and usually does not require a credit check. It should not affect your credit score.

Can You Recast Your Mortgage After Selling a Home? 

Recasting a mortgage means making a lump sum payment to reduce the principal balance on a mortgage loan and then asking your lender to reamortize your loan. If you sell your home, you will pay off your mortgage in the process, so you can no longer recast it.

Final Thoughts: Should You Recast Your Mortgage?

Recasting your mortgage can provide more room in your monthly budget by lowering your home loan costs. However, you must think carefully about whether you want to pay the required lump sum of money to recast your loan. If you want to change your interest rate, you would need to refinance instead.

Freedom Mortgage can help you explore your options for adjusting your home loan terms. Call us to get prequalified for a refinance today.

*By refinancing, the total finance charges may be higher over the life of the loan.