Recasting your mortgage might be a great way to save money every month on your monthly mortgage payment. It’s a little know strategy, but if you can recast your home loan you can lower the amount you pay each month, sometimes by a substantial amount.
What is recasting?
Basically, recasting your mortgage (or re-amortization) is paying of a large, lump sum amount and then having the monthly payments refigured based on the existing interest rate and and time schedule. Typically, if you pay off a large sum of your principal, the length of the loan will be shortened–the more you pay the shorter time you will have to pay and the less you pay in the end. This is certainly a good long-term strategy and has benefits as well. However, if you’re looking to lower your monthly payments, you can request you mortgage lender to recast your loan. This will keep the time frame left on the loan intact (as well as the interest rate) but the monthly amount you pay will be lowered to reflect the new balance.
Assuming your lender provides this service (not all do unfortunately), they will typically charge some sort of recast fee, typically $150-$500, and may request a minimum amount applied to the principal, something like $5,000 or so in most cases. There are often other restrictions and these can vary depending on your lenders own rules. Obviously, you need to contact your mortgage lender to determine the rules and fees that apply to your case.
Before you decide that recasting your mortgage is right for you, spend some time with a mortgage calculator and figure out exactly how much this will save you every month, as well as how much it will cost you in the long run. Also, if you’re paying a high interest rate, it might be better to refinance at this point to get into a more affordable loan for the long-run.