Recast Mortgage: Everything You Need to Know About Mortgage Recasting

A mortgage is often the largest monthly expense that people pay. The thought of reducing the amount of money you owe each month comes to mind for just about every homeowner at one point or another.
If you have a competitive interest rate and you’re pleased with the terms and conditions of your loan, how can you possibly lower your monthly mortgage payment? This is exactly where a mortgage recast steps in!
What is a Mortgage Recast?
When people talk about lowering their monthly mortgage payments, the term refinance is thrown around quite a bit. But a mortgage recast is not another term for refinancing. Rather, it’s a completely different term! So, what exactly is a mortgage recast?
Simply put, a recast mortgage is when the homeowner puts a large lump sum of cash towards the principal balance on the mortgage. From there, the lender will reamortize the mortgage loan, resulting in a lower monthly payment.
How a Mortgage Recast Works
How exactly does a mortgage recast work? To better understand a mortgage recast, let’s take a look at the following example.
Imagine a scenario in which you bought a home for $300,000. At the time of purchasing, you put down 10% of the total sale price of the home, and you agreed to pay off the borrowed $270,000 over the course of thirty years. You’ve owned the house for five years, so you now owe $245,000 on your mortgage.
Now imagine what you could do if you came across a lump sum of cash in your sixth year of owning your home. If you don’t plan on investing the cash or purchasing anything in particular, you could choose to use the money to recast your mortgage instead.
If you were to choose this route, you would take that lump sum of cash and allocate it solely towards the principal balance on your home loan. For instance, you could go from owing $245,000 on your mortgage to $175,000 instead, though the exact value will depend on how much you put towards your mortgage during the recast process in the first place.
With this same example in mind, your mortgage needs to be paid off in full within the next twenty-four years. But instead of paying $245,000 over the next twenty-four years, you’ll now only owe $175,000.
As a result, the mortgage lender will recast your mortgage and recalculate how much money you owe each month. Considering the fact that your outstanding balance has been significantly reduced, you’ll owe less principal and fewer interest payments every month, too!
Eligibility and Guidelines For a Mortgage Recast
If this sounds like something you’re interested in, keep in mind the eligibility and guidelines. Typically, a mortgage lender will have the following requirements before one could recast their mortgage.
- Generally speaking, the mortgage lender will require the homeowner to pay down a certain dollar amount. If you have an extra $1,000, you cannot recast your mortgage. Many mortgage lenders will require at least a $10,000 payment.
- The mortgage lender may charge a small fee, typically a few hundred dollars, to do the administration work involved with a recasting mortgage.
- The mortgage lender will also require the loan to stay as is for the next 2-3 payments before the recast rate goes into effect.
Mortgage Recasting vs. Refinancing
When one refinances their home, they are not only changing the interest rate on the home, they are also changing the duration of the mortgage. For example, if you have 22 years left on your mortgage, and you refinance back into a 30-year mortgage, you will owe 30 years on your mortgage, starting from square one.
With that said, refinancing has tremendous benefits. If you previously purchased your home and received a high interest rate on your mortgage, you can save thousands of dollars if the interest rate has dropped and you refinanced your loan with a lower interest rate.
A mortgage recast does not change the duration of your mortgage, nor does it change the interest rate percentage. It will only reduce how much money you owe each month.
Pros of Mortgage Recasting
There are three main benefits to a mortgage recast!
- You’ll reduce your monthly mortgage payment.
- Your reduced monthly mortgage payment will lower your debt-to-income ratio.
- You’ll pay less interest over the life of your loan.
Cons of Mortgage Recasting
With that being said, there are disadvantages that must also be taken into consideration, such as these:
- You may lose the opportunity cost of investing the money elsewhere.
- While you will have more equity in your home, you can't borrow against your home.
How To Calculate if a Recast is Right For You
Understanding how to determine whether or not a recast is right for you requires that you consider a few primary variables.
First and foremost, how much money do you plan on putting down for your mortgage recast, and how much money will a recast save you each month? If you are planning to put $25,000 down towards your recast, that would reduce your monthly mortgage payment by $50, or $600 per year. Thus, you will have effectively generated a rate of return slightly lower than two-and-a-half percent.
You may be better off taking that $25,000 and investing it elsewhere. However, if this ended up reducing your monthly mortgage payment by $150, then you’d have a rate of return slightly greater than seven percent on that $25,000 lump sum payment, which paints a far more attractive picture.
Additionally, you’ll want to consider what other opportunities a lower monthly payment provides. As mentioned, this reduces your debt to income ratio, which could help lower your interest rates on other loans you’re looking to secure.
Save Money Without Adjusting Your Commitment
When a mortgage recast is sought out, it provides people with the opportunity to save money on their monthly mortgage payment without impacting the terms and conditions or the commitment of their mortgages. A mortgage recast is a great way to reduce your debt-to-income ratio, too.
If you ever come across a lump sum of cash that equates to $10,000 or more, and you find yourself wondering how you should invest that money, consider putting that money towards the principal balance on your home. Not only will you establish more equity in your home, but you’ll also save thousands of dollars in interest over the remaining duration of your mortgage.
Refinance Your Home Today!
This page last updated: March 21, 2022
Read more on this topic below.

Mortgage insurance is something millions of homeowners pay for each year. However, this type of insurance does not protect the...

Some homebuyers refuse to purchase a property if it is part of a property owner association. On the...

If you are falling behind on your monthly mortgage payments or are concerned that you may not be able to make...

There are a few main reasons why people consider refinancing their mortgages. You need to consider what your main goal is with refinancing. If there...

When it comes to property ownership, there are several ways that people can hold titles. Tenancy in common (TIC) is...

Research indicates that 58% of homeowners in HOA communities and single-family homes pay an average monthly fee of $250....

People buy their homes for a number of reasons. Affordability, stability, and comfort are some of the most...

A home appraiser plays a big part in the majority of homeowners looking to refinance their homes.

What is a 5/1 ARM loan? When it comes to different financing types, you can score for buying or refinancing homes....

A home doesn’t just fall into foreclosure status. There are stages and processes that take place behind the scenes before...

It’s very likely that your mortgage loan will be the largest loan you have during your lifetime. Mortgages are not a one...

Realizing you might not be able to pay your upcoming mortgage payments can be stressful. Whether your source of income has...

Refinancing your home can save you thousands of dollars per year! When you extrapolate that savings over...

Most of us are aware of the difference between single-family homes and large apartment buildings, but what...

For homeowners and prospective homebuyers alike, few documents carry as much legal weight as the house deed. But if you’re...

A loan estimate gives you the opportunity to know the details of the mortgage before you accept and compare offers from different lenders to...

If you’re looking to buy a house, and do not have a mountain of cash saved up, you’ll need to consider getting a mortgage to help you finance this...

What is an ARM, and how does it work? Here, we’ll discuss the ins and outs of adjustable-rate mortgage options and see if an...

Multigenerational living is on the upswing as an increasingly high number of households are embracing...

What is a Cash-In Refinance?
If you’re making high monthly payments on a mortgage but can’t qualify for a refinance, you might have heard of...

In times of economic hardship, like the present economic events caused by the COVID-19 pandemic, many homeowners...

Private Mortgage Insurance, or “PMI” for short, is the type of insurance that you may be required to pay with a mortgage loan.

Insurance offers financial protection, helping you in times of need. One excellent and necessary type of insurance is property and...

Buying a home? You’ll likely need to get it appraised before you receive the clear to close. If you’re wondering...

Ever asked yourself the question, “How old is my house?” It’s not uncommon for property owners to...

Innovative and cost-effective home improvements ideas are all over the internet, especially when it comes to...

Whenever you are borrowing money, whether it’s for a mortgage, credit card, or car loan, you’ll hear the terms...

If you’re looking to buy a house that is part of an HOA, then you’ll want to be educated about HOA rules...

Whenever you’re looking to buy a home, you need to understand the all in cost of that home. Doing this will help you budget and plan...

Buying a home or condo is a costly process. On top of the down payment, mortgage, and closing costs,...

The All-Encompassing Mortgage Refinance Checklist
Refinancing opens up great opportunities for homeowners to cash out on equity, reduce...

The interest rate on a mortgage is simply the fee a lender charges the borrower for borrowing their money. Over the...

A cash-out refinance is the process of taking the equity you have built in your home in the form of a cash deposit into a designated account...

When you buy a house and start making mortgage payments, your payment consists of four different components, known...

There are a lot of expenses associated with purchasing a home. A homebuyer will need to set aside enough money for the down payment and various...

Consider this scenario. You bought a house several years ago, and at the time, you thought you got a pretty great...