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:
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.
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.
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.
Mark comes to us with extensive experience in the real estate industry with over 20 years of experience working with buyers, sellers, and builders. Mark has been an active member of RACM, REALTOR Association of Central Massachusetts, since 2001 and has built a formidable reputation in Worcester county.
Consistently ranked among the top 10 Realtors in Worcester county with career sales totaling 300 million in pending and sold, Mark is an extremely valuable resource for those getting ready to list their home, purchase a new home, or build from the ground up.
As a Shrewsbury native, and a seasoned real estate professional, Mark joined Andrew Abu REALTORS and works side-by-side with a talented team of industry experts who specialize in market trends and local market stats, to keep ahead of the curve and combine home marketing with innovative technology and forward-thinking. His valued reputation with client's and business partners for the past two decades and proven success with record setting sales, will leave you in capable hands during any real estate transaction.
