We just got a large bonus at work and want to put $40,000 toward our mortgage. A friend told us to ask about recasting instead of refinancing. What is a recast, and would it help us?
Great question, and your friend pointed you toward something a lot of homeowners have never heard of.
A mortgage recast — sometimes called re-amortization — lets you make one large payment toward your principal balance. We then recalculate your monthly payment based on the smaller balance that is left. Your interest rate does not change. Your payoff date does not change. Only the payment goes down.
If you simply send $40,000 as an extra principal payment, your balance drops and you shave years off the loan, but your monthly payment stays exactly the same. A recast turns that same $40,000 into breathing room every month instead.
Here is what it can look like. Say you owe $400,000 at 6.5 percent with 27 years to go, and your principal and interest payment runs about $2,570. Knock the balance down to $360,000 and recast, and that payment falls to roughly $2,313. You have freed up about $257 a month, with no change to your rate and no new loan.
The cost is modest. We typically charge a flat fee somewhere in the $150 to $500 range. There is no appraisal, no credit check, no title work and no closing costs. That is inexpensive compared to a refinance.
A few conditions apply. Most servicers ask for a minimum lump sum, commonly $5,000 to $10,000. You need to be current on your payments. Recasting is generally reserved for conventional loans.
Rick Good spent ten years in the newspaper business, including with The News & Observer (Raleigh, NC) and The Greenville News (Greenville, SC). He co-wrote, with Melinda Coleman, Rutledge to Riley: Governors of South Carolina, 1776–Present (Published by The Greenville News), and is the author of Mind Games Trivia #1 (Amazon). He has recently spent 15 years creating original trivia content through Sounds Good Mobile Entertainment and continues that with his new company, SGME Software. He edits The Smart Reader’s money, real estate, and business coverage.