Recast Mortgage: Reduce Your Payment Without Refinancing

Recast Mortgage: How to Reduce Your Payment Without Refinancing Brought to you by MyHECM.com: Mortgage and retirement resources for seniors, their families, and their advisors. Please help us out by clicking the Like and Subscribe buttons. Thank you for your support! What is a Mortgage Recast? A mortgage recast is the process of recalculating your mortgage payment based on a reduced mortgage balance without changing your interest rate or loan term. It's also known as a mortgage reamortization. Here's how it works. You pay a lump sum on your mortgage then your lender recalculates your mortgage payment based on the reduced balance and remaining loan term. A mortgage recast is not the same as a mortgage refinance. A refinance involves replacing your mortgage with a new one that has a different rate and loan term. A refinance usually involves lots of paperwork and potentially thousands in closing costs. A recast reduces your monthly payment without the hassle, headache, and expense of refinancing. To see how this works, let's check out an example. Let's assume a homeowner named Betty opened a $250,000 30-year mortgage two years ago with an interest rate of 5.50% and a principal and interest payment of $1,419 per month. After two years of payments Betty's balance is now just over $243,000. Let's also assume Betty just received an unexpected $100,000 windfall. Betty uses the windfall to pay down her mortgage so she can recast the payment. Betty's new mortgage balance is now just over $143,000. Betty's lender recalculates her payment based on the new balance and remaining loan term, which reduces her payment to just $837 per month. That saves Betty $582 per month and over $95,000 in interest over the remaining life of her mortgage. How Much Does a Recast Cost? The cost of a recast varies but most lenders charge around $250 to $350. Why Do Lenders Offer Recasts? The answer is pretty simple: A recast reduces the lender's risk. When you pay down your mortgage you increase your home equity. Lenders know that homeowners with lots of equity are usually a lower default risk. A recast mortgage also has a lower monthly payment, which reduces the risk of default as well. What's the Downside? A possible recast mortgage downside is that it locks up a lot of money in your home in the form of home equity. Home equity is great to have but it's not liquid. You can't use it for a financial emergency. If this concerns you, you can always get a home equity line of credit (HELOC) to use for emergencies. A Smart Financial Move If you have a large lump sum of cash, a mortgage recast is a great way to reduce your monthly payment without the hassle and expense of refinancing. If you're considering a mortgage recast be sure to contact your lender before you pay down your mortgage. Make sure they offer a recast, find out how much they charge, and have them estimate your new payment before your pay down your mortgage. Thanks for watching! We hope this was informative. Please click the Like button to help us get the word out. Thank you!