What is a Mortgage Recast?
If you have recently inherited money, sold a second property, or accumulated significant savings, you might be considering a mortgage recast. A recast allows you to make a large lump-sum payment toward your principal balance, after which the lender recalculates your monthly payments based on the new, lower balance.
Our Recast Mortgage Calculator shows you exactly how much your monthly payment will drop. If you want to compare this to paying off other debts, consider running your numbers through our Credit Card Payoff Calculator to see where your lump sum goes furthest!
Recast vs. Refinance
It's important to understand the difference between recasting and refinancing, as they serve different purposes:
- Mortgage Recast: You keep your current interest rate and your current loan term. The only thing that changes is the balance and the monthly payment. The fees are very low (usually $150 - $300).
- Mortgage Refinance: You take out a completely new loan. You get a new interest rate and a new term (e.g., resetting to 30 years). Closing costs are high (usually 2% - 5% of the loan amount).
If you already have a very low interest rate, recasting is far superior to refinancing.
Recast vs. Principal-Only Payments
What happens if you just make a $50,000 extra payment without officially "recasting" the loan?
If you make a massive principal-only payment, your monthly required payment will stay exactly the same. However, because you owe less principal, less interest accrues each month, meaning your standard payment will pay the loan off years ahead of schedule.
Recasting is specifically for people who want to lower their required monthly payment right now, freeing up cash flow in their monthly budget while keeping the original payoff date.