A mortgage recast is a great way for homeowners to reduce their monthly payments without refinancing. It’s a process that involves reducing your remaining principal balance by making a lump sum payment.By doing so, the amount of your monthly payment is recalculated based on the new, lower principal balance. In this article, we will discuss how to recast your mortgage and the advantages of doing so.
What is Mortgage Recasting?
Mortgage recasting is when a homeowner makes an additional payment to their mortgage lender that is large enough to significantly reduce the remaining balance of their loan. This lump sum payment reduces the principal balance of the loan and, in turn, reduces the monthly payment.
The recast process is different from refinancing or modifying a loan because it doesn’t involve any changes to the loan’s interest rate or term. It simply reduces the principal balance and recalculates the payments based on the new balance.
How to Recast Your Mortgage
If you’re interested in recasting your mortgage, the first step is to contact your lender. All lenders have different policies and procedures for recasting, so it’s important to make sure you’re following their guidelines.
Most lenders will require you to make a lump sum payment of at least 5% of the remaining balance of your loan. This payment must be in addition to your regular monthly payments. The lender will then recalculate your payments based on the new, lower balance of your loan.
In some cases, lenders may also require that you pay a fee to recast your loan. This fee can vary from lender to lender, so it’s important to find out what your lender’s fee is before you make any payments.
Advantages of Recasting a Mortgage
The biggest advantage of recasting a mortgage is the reduced monthly payment. By reducing the principal balance of your loan, you’ll be able to lower your monthly payments and free up some extra cash each month.
Another advantage of recasting is that it’s usually a much faster process than refinancing or modifying a loan. This is because it doesn’t involve any changes to the loan’s terms or interest rate.
Finally, recasting your mortgage can also help you build equity faster. As you make payments on the lower balance, more of each payment will go toward the principal, meaning you’ll build equity faster than you would if you were making payments on the original balance.
Disadvantages of Recasting a Mortgage
The biggest disadvantage of recasting a mortgage is that it can be expensive. In addition to the lump sum payment, you may also have to pay a fee to the lender. This can add up to a significant amount of money, so it’s important to make sure you’re prepared to pay these costs before you start the recasting process.
Recasting can also have a negative impact on your credit score. This is because the lump sum payment is seen as a “new debt” by the credit bureaus, which can temporarily lower your score.
Conclusion
Mortgage recasting can be a great way for homeowners to reduce their monthly payments without refinancing. It’s important to understand the process and the associated costs before you start the process, but if you’re prepared to make the lump sum payment and pay the associated fees, it can be a great way to reduce your monthly payments and free up some extra cash.