Restrictions on eligibility: Some lenders place restrictions on mortgage recasts based on how much you owe, how much you’ve reduced your balance and if you’ve made your payments on time. For example, FHA, VA and USDA loans may not be recast. Not all loans are eligible for a mortgage recast: Many lenders do not offer them at all and, for those who do, some loans are not eligible. You cannot lower your interest rate: If current rates are lower than your existing mortgage rate, you cannot lower the rate through a mortgage recast.Ĭannot withdraw equity from your home: A mortgage recast uses your existing balance and doesn’t allow you to pull any equity from your home like a cash-out refinance does. The disadvantages of a mortgage recast entail various opportunity costs and limits on availability. Aside from a small fee (usually around $250 to $500), there are no additional costs to recast a mortgage. No closing costs: Getting a new mortgage can include expensive closing costs, which often dilutes the savings from the lower interest rate. With a mortgage recast, the process is much quicker since the lender isn’t underwriting a new loan. No lengthy application process: Refinancing can take 30 days or more and requires a lot of paperwork. However, a recast amortized your balance over the remaining term of your current mortgage. You don’t extend the term of your mortgage: When refinancing, your mortgage term resets.
Keeps your current interest rate: For borrowers who locked in a low interest rate before rates increased, recasting ensures that they won’t lose that attractive rate. No appraisal is required: Lenders do not require an appraisal when recasting your mortgage. No credit check is required: With a refinance, the bank checks your credit and underwrites a new mortgage based on your current income and financial obligations. Among the advantages of this move are its simplicity and low cost.
Some homeowners set the money aside in a college savings plan for their children or grandchildren.īefore deciding whether a mortgage recast is appropriate for your situation, it helps to list the pros and cons of this strategy. This can accelerate your path to financial independence or bolster your retirement accounts. Ideally, you take the monthly savings and apply it towards something that offers a higher rate of return than your mortgage interest rate. This frees up cash on a monthly basis that you can use to pay off other debt, save in your retirement plan, invest in your brokerage account or cover your expenses. Alternatively, some borrowers request a recast after they’ve made numerous small payments that add up to a large reduction in their balance ahead of schedule.īy recasting your mortgage, you reduce your monthly mortgage payment. Many borrowers ask their banks to recast their mortgage after they’ve made a large lump sum payment to reduce their balance. Understanding the advantages and possible disadvantages of a mortgage recast can equip you to decide if this is a good move for you.Ĭonsidering a mortgage recast? Consult a financial advisor to make sure it’s accounted for in your long-term financial plan.Ī mortgage recast is when your lender recalculates your remaining monthly payments based on the outstanding balance and remaining term. A different approach is to make a lump-sum payment and recast your mortgage based on the lower balance. While you save monthly, it can cost you more in the long run. The problem with this approach is that it resets the clock on your mortgage and can stretch out your payments over a longer period of time. Equal Housing Opportunity.When homeowners seek to reduce their monthly mortgage payments, they generally focus on refinancing their homes. Rates are current as of 8/18/15 and are subject to change. If the down payment is less than 20%, mortgage insurance may be required and could increase the monthly payment and APR. If the closing costs are financed, the loan, APR and payment amounts will be higher. Estimated closing costs used in the APR calculations are assumed to be paid by the borrower at closing. Your loan's interest rate will depend on the specific characteristics of the loan transaction and your credit profile at the time of closing. The payment amounts provided do not include homeowners insurance or property taxes which must be paid in addition to your loan payment.
For example, a mortgage amount of $200,000 with an estimated monthly payment of $984 and an interest rate of 4.25% would have an APR of 4.333%. The corresponding APR for each interest rate is provided next to the estimated monthly payment. MORTGAGE PAYMENT COMPARISON - 30-Year fixed-rate loan, with a 20% down payment
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