What is a Mortgage Recast?
A mortgage recast, or reamortization, involves paying a lump sum toward the principal of your mortgage, and asking the lender to have the monthly payments reset according to the original interest rate and loan terms.
Since the principal is reduced by paying a lump sum, the monthly payments are often adjusted lower, and the borrower pays less interest over the life of the loan.
Lenders usually charge a minimal administrative fee, but there no closing costs involved, so the total expenses for a recast are very low, perhaps only $150 to $250. Lenders, though, have a minimum you must pay toward your principal to qualify for a recast.
Who Should Recast?
The people who most commonly recast their mortgage are those who have purchased a new home, but have not yet sold their old one. Recasting the mortgage on the original home, allows the homeowner to lower their monthly payment, whereby lowering their expenses until the older home sells.
Also, people who have difficulty qualifying to refinance their mortgage are good candidates for a mortgage recast. This includes people who may have recently changed jobs, are self-employed, or have had recent financial difficulty.
Furthermore, a mortgage recast may be beneficial for people who have recently purchased a home, and have just come into a lump sum of money, possibly resulting from a lawsuit settlement or an inheritance. Though it may not be advisable to refinance a new mortgage in this situation, borrowers may be able to pay a lump sum toward the principle, lower their monthly payment, and pay less interest over the life of the loan.
How To Save Money with a Mortgage Recast?
As mentioned above, the reason to recast a mortgage is to save money.
Though borrowers can often save more money refinancing a mortgage, there are times when refinancing is either not an option or advantageous. In those cases, it may be helpful to recast a mortgage to save money.
Recasting a mortgage can lower a borrower’s monthly payment, while also allowing the borrower to save money on interest over the life of the loan.
How to Recast a Mortgage
If you are interested in recasting your mortgage, you should reach out to a mortgage lender or servicer.
If your lender allows your mortgage to be recast, ask about fees, the minimum lump sum payment toward principle that is required, in addition to any other concerns.
Likewise, you may want to take the opportunity to reach out to your mortgage broker, and see if you qualify to refinance your mortgage. Your broker can also tell you whether you would save more money by refinancing your existing mortgage.
Marimark Mortgage is based in Tampa, Florida, and serves the mortgage needs of homebuyers and homeowners in Florida, Virginia, and Pennsylvania.
We specialize in conventional home mortgages, FHA, VA and USDA mortgage options, refinance loans, and reverse mortgages. We’ve worked extensively with cash-out refinancing, and help clients with HARP refinancing to lower their monthly mortgage payments.