A mortgage recast is when you make a large lump sum payment toward your loan principal, and your lender recalculates your monthly payments based on the new, lower balance. Unlike refinancing, your interest rate stays the same, but your monthly payments decrease for the remaining loan term.
Understanding what is a mortgage recast can help homeowners significantly reduce monthly payments without the complexity and costs of refinancing. This powerful financial strategy allows borrowers to leverage windfalls, bonuses, or savings to permanently lower their housing costs while maintaining their existing interest rate.
A mortgage recast (also called loan recast or reamortization) works by applying a substantial principal payment to your existing loan balance, then recalculating your monthly payment over the remaining loan term.
Original Loan Details:
• Original loan amount: $400,000
• Interest rate: 6.5%
• Current balance: $350,000
• Current monthly payment: $2,528
• Remaining term: 25 years
After $50,000 Recast Payment:
• New loan balance: $300,000
• New monthly payment: $2,023
• Monthly savings: $505
• Annual savings: $6,060
Not all loans or borrowers qualify for mortgage recasting. Understanding who qualifies for a mortgage recast helps determine if this strategy fits your situation.
| Requirement Category | Typical Requirements | Details |
|---|---|---|
| Loan Types | Conventional loans | Most conventional mortgages allow recasting; GSE loans may have restrictions |
| Minimum Payment | $5,000 - $10,000 | Lender-specific minimums; some require $20,000+ |
| Account Status | Current on payments | No recent late payments; good payment history required |
| Loan Seasoning | 12+ months | Some lenders require loan to be 12-24 months old |
| Processing Fee | $250 - $500 | One-time fee for recalculation and processing |
Understanding when to choose recasting versus refinancing can save thousands in fees and optimize your financial strategy.
| Factor | Mortgage Recast | Refinancing |
|---|---|---|
| Interest Rate | Stays the same | New rate based on current market |
| Loan Term | Remains unchanged | Can be modified (15, 20, 30 years) |
| Closing Costs | $250 - $500 fee only | 2% - 5% of loan amount |
| Credit Check | Not required | Full credit review required |
| Income Verification | Not required | Full income documentation |
| Appraisal | Not required | Required for most loans |
| Processing Time | 2-4 weeks | 30-45 days average |
30-Year Impact Example:
• Original loan: $400,000 at 6.5%
• Total interest over 30 years: $503,788
• After $50,000 recast: $350,000 balance
• New total interest: $441,563
• Total interest savings: $62,225
• Plus: Monthly payment reduction of $505
| Advantages | Disadvantages |
|---|---|
|
✅ Lower monthly payments Immediate reduction in monthly obligations |
❌ Large cash requirement Need significant lump sum (typically $5K-$10K+) |
|
✅ Minimal costs Only $250-$500 processing fee |
❌ Interest rate stays same Can't take advantage of lower market rates |
|
✅ No credit check No underwriting or qualification process |
❌ Limited loan types Many loan programs don't allow recasting |
|
✅ Fast processing Typically 2-4 weeks vs. 30-45 days for refinance |
❌ Opportunity cost Money could potentially earn more in investments |
|
✅ Reduced total interest Less interest paid over life of loan |
❌ Less liquidity Large cash amount tied up in home equity |
Consider Recasting When:
Consider Investing Instead When:
Mortgage recasting offers a simple, cost-effective way to reduce monthly payments when you have substantial cash available. While not suitable for all loan types or situations, recasting provides significant benefits for qualified borrowers seeking payment relief without refinancing complexity.
With interest rates remaining elevated, recasting becomes increasingly attractive for borrowers with low existing rates. Consider recasting when refinancing costs outweigh benefits, or when you want guaranteed savings over investment uncertainty. Always maintain adequate emergency funds after making the lump sum payment.
Ready to explore recasting options? Contact your loan servicer to discuss eligibility and requirements, or use our payoff calculator to model different payment scenarios for your situation.