Momentum Realty Group
Carolyn Brown, Momentum Realty GroupPhone: (510) 882-3454
Email: [email protected]

The basics of recasting your mortgage payments

by Carolyn Brown 07/22/2024

Recasting mortgage payments is a little-known gem when it comes to homeowner finances. It’s often viewed as a method to lower monthly payments without extending the length of your loan term. But what exactly is mortgage recasting? Are there any disadvantages to it? What about my interest rates? Will my overall loan balance increase or decrease?

Here’s a quick guide to understanding mortgage recasting and whether it’s right for you:

What is a mortgage recast?

When a homeowner recasts their mortgage, they pay off a lump sum of their current loan balance to redo the amortization of their monthly mortgage payments. When their monthly payments are put up to be amortized again, it simply breaks down the remaining balance of the loan - after the lump sum payment - into more manageable mortgage payments.

The loan itself doesn’t receive any special treatment like new loan repayment terms or interest rate adjustment. It simply breaks the remainder of the loan down into new monthly payments, while everything else stays the same.

Are there disadvantages to a mortgage recast?

As with most financing or loan options, there are a few drawbacks. The biggest one is producing the lump sum of cash to qualify for and cover recasting your mortgage payments. This requirement is typically set by your lender, who will also charge a small fee to recast the mortgage balance.

Apart from needing a large sum of cash, your interest rate is likely to stay the same. This can be both a pro and a con, depending on your mortgage’s interest rate.

If you were hoping to stretch out your payments for a little longer, and possibly lower them further, recasting mortgage payments may not be for you. When a mortgage is recast, the loan repayment term stays the same, and the amount of the monthly payment is directly related to the lump sum payment.

What about my principal balance?

Your principal balance will decrease by the lump sum payment amount. For example, if you have approximately $175,000 left on your principal balance, and you pay $25,000 for your recasting, your principal balance will decrease to $150,000. Your monthly payment will then come from your new principal balance over the remaining life of the loan.

Recasting mortgage balances is a great way to save a little extra cash over the rest of your loan’s life. However, it’s best to discuss your financial situation with your mortgage lender to ensure they offer mortgage recasting, since many providers may not.

About the Author
Author

Carolyn Brown

Hi, I'm Carolyn Brown and I have over 20+ years of real estate experience, serving Bay Area Counties: Alameda, Contra Costa, Solano, Sonoma, Sacramento, and Central Valley. I have a Master's Degree in Psychology and I work part-time for West Contra Costa Unified School District. This has afforded me the opportunity to connect with families and communities.  

I have always been a giver and compassionate about serving and helping others. A real estate career was never my goal but the passion I have to help others changed that and I would love to help you! Whether you're in the research phase at the beginning of your real estate search or you know exactly what you're looking for, you'll benefit from having a real estate professional by your side. I'd be honored to put my real estate experience to work for you.  

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