Asked by: Brant Pelchen
personal finance personal loans

What does it mean to recast a mortgage loan?

Last Updated: 17th April, 2020

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Essentially, a loan recast means that while your interest rate and your loan term remain unchanged, your monthly mortgage payment is reduced to reflect your actual current loan balance. For recasting to work, lenders require an additional lump sum payment to reduce your balance.

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In this manner, is it good to recast mortgage?

For the borrower, the primary benefit of recasting a mortgage is to reduce monthly payments. Recasting also reduces the amount of interest the borrower will pay over the life of the loan. It can also be a more comfortable option than refinancing.

Also, is it better to recast or pay down principal? Recasting is sometimes referred to as re-amortization. Instead of paying extra on your mortgage each month, you make one larger lump sum payment against the principal balance and ask your lender to reset the monthly payments. You'd pay less in interest overall but you wouldn't pay off your loan any earlier.

Also to know is, what happens when you recast a mortgage?

A mortgage recasting, or loan recast, is when a borrower makes a large, lump-sum payment toward the principal balance of their mortgage and the lender, in turn, reamortizes the loan. Less interest paid over the life of the loan. If you have a low interest rate, that will stay the same.

How many times can you recast a mortgage?

You must make at least two consecutive monthly payments at your current payment amount before a loan can be recast. There may be a small fee associated with the recast. This is typically around $250. There is not typically a limit around how many times someone can recast their loan.

Related Question Answers

Oulaid Bouvard

Professional

Is it smart to pay extra principal on mortgage?

Making additional principal payments will also shorten the length of your mortgage term and allow you to build equity faster. Because your balance is being paid down faster, you'll have fewer total payments to make, in-turn leading to more savings.

Lide Netsch

Professional

Can I lower my mortgage payment without refinancing?

Re-Amortize Your Mortgage
Re-amortizing or recasting is a great way to lower your monthly payment without refinancing. This process involves extending your mortgage term. You may be able to extend your mortgage loan to a 40 year term as well, this would lower your mortgage payment significantly.

Eriberto Falomir

Professional

Can you pay off a chunk of mortgage?

Most lenders allow you to pay 10% of your mortgage balance as an overpayment per year if you're still in your introductory fixed, tracker or discount period. If you're beyond that intro deal and paying your lender's standard variable rate (SVR), you can usually overpay by as much as you want.

Kora Lalanne

Explainer

Will Wells Fargo recast my mortgage?

Bank of America and Wells Fargo Home Mortgage charge customers $250 for a loan recast. At Wells Fargo, customers must make a lump sum payment of $5,000 or 10 percent of the remaining loan balance, whichever is greater, to qualify for a loan recast.

Achour Niembro

Explainer

What happens if I make a large payment on my mortgage?

Although making a large payment on your mortgage does cut the interest you'll pay, it won't decrease your interest rate. You'll still pay the same total every month, but the portion of your payment that goes toward the principal will go up a little and the amount that goes toward interest will drop a bit.

Axel Heidtel

Explainer

How is mortgage recast calculated?

If your mortgage lender offers annual recasting, select "Annual" from the drop down menu. The calculator will then reduce your principal and payment amount each year that your balance is greater than the recast amount. Note that any recast fee you entered will be multiplied by the total number of recasts.

Xiaomei Kisie

Pundit

How much interest do you pay on a mortgage?

Higher interest rates generally reduce the amount of money you can borrow, and lower interest rates increase it. If the interest rate on our $100,000 mortgage is 6%, the combined principal and interest monthly payment on a 30-year mortgage would be about $599.55—$500 interest + $99.55 principal.

Charles Rheinschmidt

Pundit

How much extra should I pay on my mortgage?

Paying extra on your mortgage means that you make additional payments to your principal loan balance beyond your regular payments. For example, if you pay $1,300 per month normally, you may pay an extra $200 to the principal for a total payment of $1,500.

Tais Arresse

Pundit

What does it mean to recast your loan?

Essentially, a loan recast means that while your interest rate and your loan term remain unchanged, your monthly mortgage payment is reduced to reflect your actual current loan balance. For recasting to work, lenders require an additional lump sum payment to reduce your balance.

Can Goltman

Pundit

How soon can you recast a mortgage?

Your lender will recast your mortgage after the IO period ends and the monthly payment will be significantly higher to account for the fully-amortizing payment over a shorter, 20-year term.

Mika Matsnev

Pundit

Should you pay off your mortgage early?

Paying off your mortgage early frees up that future money for other uses. While it's true you may lose the mortgage interest tax deduction, the savings on servicing the debt can still be substantial. But no longer paying interest on a loan can be like earning a risk-free return equivalent to the mortgage interest rate.

Aslan Iacuzzo

Teacher

How does making a lump sum payment affect my mortgage?

Making a lump sum payment, particularly in the early years of your loan, can have a big effect on the total interest paid on the loan. Choose the frequency with which you repay your loan, keeping in mind that more frequent mortgage repayments will reduce the interest paid as well as the life of your loan.

Abdennaser Grangel

Teacher

How does a lump sum payment affect my mortgage?

Simply put when you pay a lump sum it all goes down on the principal of the mortgage. This is unlike your normal mortgage payment where part of it goes to interest and part of it goes to the principal. The benefits of a lump sum mortgage payment is that it brings down the amount you owe on your mortgage immediately.

Sadrac Alamilla

Teacher

Should I pay a lump sum on my mortgage?

If you make a lump sum payment and don't recast the loan (see below), you'll pay off the loan more quickly and save money on interest. Those monthly payments will simply end sooner – so you can put those funds towards other goals.

Sunny Linneberger

Teacher

Can I increase the amortization on my mortgage?

06 You can increase or decrease the amortization period of your mortgage, which can range up to 25 years. If you are looking to minimize your monthly payment, a longer repayment period is perfect. If you are looking to pay off your mortgage faster, a shorter amortization period is the way to go.

Luca Bahon

Reviewer

Does recasting save interest?

While both recasting and refinancing a mortgage can lower your monthly payments and reduce the total interest paid, that's where the similarities end. On the other hand, when you recast your mortgage, you pay the lender a lump sum toward the principal. The loan is recalculated, based on the new lower principal balance.

Eralia Kalsperger

Reviewer

Is a 10 year mortgage a good idea?

If you choose a 10-year fixed mortgage, your monthly payment will be the same every month for 10 years. When rates are low and you can afford the much higher monthly payment, a 10-year fixed mortgage allows you to pay off your mortgage in only 10 years, build equity at a faster rate and save thousands in interest.

Carolee Oehlers

Reviewer

How is APR interest calculated?

APR is the annual rate of interest that is paid on an investment, without taking into account the compounding of interest within that year. APR is calculated by multiplying the periodic interest rate by the number of periods in a year in which the periodic rate is applied.

Synnove LeVine

Reviewer

How do you calculate a loan payment?

Interest-Only Loan Payment Formula
Multiply the amount you borrow (a) by the annual interest rate (r), then divide by the number of payments per year (n). Or, multiply the amount you borrow (a) by the monthly interest rate, which is the annual interest rate (r) divided by 12: Formulas: a*(r/n) or (a*r)/12.