A mortgage recast is a one-time “paydown” of your mortgage, which results in a lower payment.
Sounds good, but there are some things to consider before opting for a recast.
You can accelerate the payoff of your mortgage in two main ways: The one you are probably most familiar with is when you send in a specific amount of extra money each month with your mortgage payment to be applied to the balance.
The goal is that the stream of extra payments, over time, will lower the principal balance, reduce interest expense, and thus shorten the term of the mortgage.
For example, by annually making one extra payment of principal and interest this way, over the course of 12 monthly payments on a 30-year loan, you’ve taken roughly four years off the end of the loan.
Keep in mind, though, that throughout the whole process of this “paydown,” regardless of how long it continues, the base mortgage payment will remain the same.
The mortgage recast
A recast works a little bit differently. As opposed to the example above, when you made smaller payments over time, a recast is a one-time larger payment.
The recast process includes a recalculation of the mortgage payment downward. This could be beneficial to you as your monthly mortgage payment is lower. But you may want to consider the following:
First, not all lenders offer this option. If it’s something that you are hoping to do, discuss it with your lender before making plans. Second, the lender may have a minimum “paydown” amount, such as 10% of the original mortgage amount.
Finally, the lender may charge a fee for a mortgage recast. This can range from a nominal fee to well over $500. Lenders incur expenses in offering this option, and this is how they recoup some of this expense.
To learn more, contact your mortgage professional.