Mortgage Recast Calculator: How to Reamortize and Save Money

Last updated 03/15/2024 by

Summary:

A recast of your mortgage allows you to make one large payment toward your mortgage in exchange for a lower monthly payment. This simple mortgage recast calculator will help your work out when it makes sense for you. Choosing to recast your mortgage to improve your month-to-month payments could be a sound financial decision even given the minimum and fee.

Whether you have a first-time mortgage or you’re a seasoned pro with a blanket mortgage over several homes, chances are that you still might find some mortgage terms you don’t recognize. One of the more common head-scratching terms is the phrase “mortgage recast,” or a “recast mortgage.”

A mortgage recast is an act done by a lender that determines a new amortization schedule. It often happens when a borrower pays a large lump-sum payment toward the principal balance of a mortgage. In response to this, the mortgage gets recast with a new amortization schedule, pay-off date, and, normally, lower monthly payments.

What does having a recast mortgage mean? Moreover, is it a good thing or a bad thing? It all depends on what’s going on financially. However, most find it to be a good thing. Let’s talk about it.

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What is a mortgage recast?

A mortgage recast occurs when your lender receives a large payment toward your home loan, or receives several extra mortgage payments. This is a term that relates to your lender choosing to recalculate your mortgage. In other words, it’s a way to shift your loan amount as well as your payments.

If you choose to recast your mortgage, then you will be able to pay a large lump-sum payment toward your principal. From there, your lenders will be able to give you a run-through of your new principal owed as well as lower monthly payments. Depending on how much you plunk down, it could save you money to the tune of hundreds per month.

How does mortgage recasting work?

Getting a mortgage recast is as easy as a slice of pie. It all boils down to these steps, provided that your mortgage lender allows you to do it:

First, double-check your eligibility for a recast. Not all loans are eligible. You should contact your loan servicer to find out what you can do.
Make a lump-sum payment toward your mortgage. This is a lump sum that is made on top of the regular monthly payments you make. In some cases, you can also do a series of extra payments instead.
Formally request a recast. A servicer who gets the message will be able to figure out what your new principal and interest payments are going to be month after month.
Your mortgage servicer will then do a recalculation to find out your new loan principal and your monthly bill. This is the bulk of the loan recast work. In some cases, your servicer may offer you a schedule that will pay the loan off more quickly. However, this is less likely to happen than it once was. In most cases, your monthly payment will drop but your loan term remain unchanged, meaning your new payoff date will be roughly the same as the old one. A mortgage recast calculator can be used to see how monthly payments and final payoff date will or won’t change given different lump-sum payments.
You may have to pay a small fee for the mortgage recast to happen. This is technically a form of loan modification, though it’s not as big of a process as other modifications. The fee is usually not much, just a little extra cash, typically between $100 and $400.

Mortgage recast calculator

It’s important to calculate the cost and the benefit of a mortgage recast before you make a decision. The calculator below allows you to estimate the benefits and cost of recasting your mortgage.

Compare your savings with the interest you can reasonably expect to receive if you invested the lump sum you otherwise plan to use for paying down your mortgage balance.

How do I qualify for mortgage recasting?

It used to be that mortgage recasting was a widely-offered amenity, but these days, not all lenders offer mortgage recasting. If you want to recast your current loan, you will have to make sure your lender still allows it. Here’s what else you need to know.

Most lenders have a minimum amount of money you have to put down before you can start the mortgage recasting process. In most cases, it’s $5,000. Some lenders won’t have any minimum lump-sum payment required.
You can’t have a government-backed loan.FHA loans, USDA loans, VA loans — They are great in many ways, but they can’t be recast.
Your payments always have to have been on time. This is a relatively new requirement, but most lenders will ask that you have your payment history looking spotless. It’s part of the whole mortgage note thing.
In many cases, you must also meet equity requirements. Many lenders will require you to have made loan payments that have given you at least $10,000 in equity. If you don’t have enough equity, you may have to find a different way to lower your monthly payments.

Is recasting your mortgage the same as refinancing?

Mortgage recasting and mortgage refinancing are similar in the sense that you are going to be changing the loan terms in each case. However, they are not the same thing. A refinance mortgage process involves a credit check, can get you lower interest rates, and replaces your current mortgage with a new loan.

Mortgage recasts let you keep your current loan while making a large extra payment that lowers your monthly bill. In some cases, the life of the loan might be shortened, but in all cases, the interest rate will remain the same.

Types of mortgages you can recast

Conventional loans
Adjustable-rate mortgages (ARMs)
High-balance loans
Jumbo loans (some)

Notes
When most people use the phrase “conventional loans,” what they have in mind are conforming conventional loans. That’s how we use the term in this list. These conform to Fannie Mae and Freddie Mac standards. Other non-government-backed loans are also conventional loans, however. ARMs can be adjustable conventional loans, for instance. And jumbo loans can be conventional but not conforming (they exceed the Fannie Mae and Freddie Mac size limits). High-balance loans can be of any type, including conventional. They are just loans with high outstanding balances.

Should I recast or refinance my mortgage?

This can be tricky, because both have their own perks and pitfalls. Let’s review them now and see which option fits your financial situation best. (If you’d like to get situated with a review of mortgage industry statistics and trends, take a look at our comprehensive study first.)

Recasting your mortgage

A mortgage recast is best if the following applies to you:

You meet all the qualifications for a recast and you have a loan that offers recasting. If you and your loan don’t both meet the requirements, it makes no sense to try for this option.
You want to have a lower monthly payment. A recast lowers both your principal and interest payments month after month.
Your credit check wouldn’t get you a better interest rate. If you want lower interest rates on your home loan, this is not meant for you.

Refinancing Your Mortgage

Want to go the old-fashioned way? If you’re not sure whether a mortgage refinance is in the cards, check out these promising signs:

Your loan can’t be recast. Recasting a mortgage is not always an option. If it’s not a doable deed for you, then your only other real option is to refinance.
You don’t have enough extra cash on hand. While recasting is cheaper in terms of loan fees, the truth is that most people don’t have a giant lump sum on hand. In these cases, a refinance is the smarter deal. If you want to free up some equity while you’re at it, consider a cash-out refinance.
Your credit is spotless and you could qualify for lower interest rates. This is one of the biggest reasons to refinance. Interest rate changes are a huge game-changer for your bills.
You want to have a surefire way to shorten your loan amortization term. While recasting your mortgage can improve your chances of having a shortened loan term, it’s not surefire. With a refinance, it can be.

The benefits and drawbacks of mortgage recasting

Before wrapping up with some frequently asked questions, let’s summarize the pros and cons of mortgage recasting.

WEIGH THE RISKS AND BENEFITS

Here is a list of the benefits and the drawbacks to consider.

Pros

It’s clear that having a mortgage recast can be a great thing for homeowners. But, what are the best benefits? It’s simple —

You get lower monthly payments. You pay less every month toward both your principal and interest balance. It can save you money throughout the rest of your term.
You don’t have to worry about having a credit check. In a lot of ways, your mortgage recast is going to feel like a streamlined version of refinancing. There will be less paperwork. Your mortgage won’t have to be paid then replaced with a new loan. And you don’t have to improve your DTI (debt-to-income ratio) to qualify.
Your payoff schedule will either stay the same or reduce. This is another reason to consider a mortgage recast.
You also get to keep your current loan. No one likes the idea of having to transition to another loan, do all the work again, and learn a new mortgage service. Keeping your current loan means you don’t have to worry about new closing costs or similar junk.

Cons

While the benefits are clear, the drawbacks of a recast are also pretty obvious. The issues below might make you think twice before you ask for a loan recast:

You need a fairly large lump-sum payment to make this worth your time. If you only have $5,000 to drop, you might barely notice any movement as far as your monthly payments go. You might only get a $30 discount. That might be more work than it’s worth!
You may get a better return if you invest the recast payment in other assets, such as stocks and bonds. Don’t forget to include the opportunity cost of using your savings to make a lump payment on a mortgage compared to what you could get from an alternative investment.
Not all mortgage lenders will allow this to happen. Recasting a mortgage costs lenders money. That’s why many mortgages qualify for other programs rather than recasts.
Fees alongside the lump sum are often required. If you aren’t willing to pay those fees, you might not be able to deal with your recasting.
You might not always know how much your monthly mortgage payments will be. In most cases, you can get a mortgage recast calculator to find out. Even then, it may not be what you expect.
Your interest rate will remain the same. If you want a lower interest rate, the only way to make sure you get what you want is via a refinance.

FAQ

How often can you recast a mortgage?

This depends on the lender, but generally speaking, there is no limit to how many times you can recast your mortgage. It all depends on your budget, really.

How soon can you recast a mortgage?

Though this can vary based on the mortgage note’s terms, you can generally recast your mortgage within two months of starting your mortgage. It’s important to note that you must have at least some equity in your home, have paid off some principal, before you can recast.

How much does it cost to recast a mortgage?

Aside from the minimum lump-sum payment, you might have to pay a fee. This fee varies from loan to loan, as well as lender to lender. Though rare, some companies allow you to save money on fees by doing it for free. Most companies, though, will charge between $150 and $500 for the fee.

Is mortgage recasting a good idea?

Obviously, this depends on your home mortgage and how your typical mortgage payment looks. If it’s very high and you don’t qualify for a refinance, a recast is the next best thing. If you just want to lower the interest rate, you might be better off with a refinance.

Can you keep paying down the loan balance after a recast?

If you want to pay extra toward your loan after a recast, you can. That’s not a problem. If anything, it’ll make your home loan balance drop faster.

Key takeaways

With a mortgage recast, you can pay down your mortgage in exchange for a lower monthly payment.
Loans that are backed by the government are not eligible for this type of adjustment.
A loan recast will have a minimum payment to make (minimum lump sum for a recast to happen), as well as fees that are associated with it.
Even when the minimum and fees are factored in, a loan recast can save smart homeowners hundreds of dollars every month.

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