Routing # 256078446
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MORTGAGE
What is a Mortgage Recast and How Does it Work?
What you'll learn: What a mortgage recast is and how re-amortization can help buyers compete.
EXPECTED READ TIME: 5 MINUTES
September 27, 2024
Most homeowners are aware of their mortgage refinance options, but may have never heard of a mortgage recast (also known as a re-amortization.) Not every lender offers their borrowers this alternative to refinancing, but it can be a great way for you to reduce your monthly payments and total principal balance.
In this article, we are going to explain what mortgage recasting is and when it is a good idea.
What is mortgage recasting?
A mortgage recast is an alternative to refinancing your home loan. Homeowners can make a large, one-time payment toward the unpaid principal balance (UPB) of their mortgage. Your lender then recalculates the monthly payments based on the new, lower UPB and your interest rate and mortgage term remain the same.
How does a mortgage recast work?
Here is how it works, broken down:
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The borrower pays a lump sum toward the current UPB.
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Their lender re-amortizes or recalculates the monthly payment based on the new lower balance.
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The term and interest rate stay the same.
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The payment is lowered based on the new UPB.
Who qualifies for a mortgage recast?
Not all lenders have recasting options, but many credit unions and banks offer the service for conventional conforming loans. Typically, government-backed loans (VA, FHA, USDA) cannot be recast.
How much does it cost to recast a mortgage?
Typically, a minimum 20% lump-sum payment of the UPB is recommended by lenders who offer mortgage recasts. It is also important to note that there are fees, generally up to $250, required to complete a re-amortization.
How soon can you recast?
There are no timeframe requirements that you must meet, but lenders will require at least one (1) payment made on the original UPB. Typically, if you have payments on your account that are more than 30 days late within the past 12 months, then your mortgage is not eligible.
How many times can you recast?
Usually, there is no limit on how many times you can re-amortize. Be sure to reach out to your lender, though, to learn more about their specific mortgage recast requirements.
When does a mortgage recast make sense to use?
It is always best to know all of your options before deciding what changes you want to make to your mortgage. You can choose to recast your home loan at any time, whether you have had it for years or even if it is a new loan. Here are a few key aspects of a mortgage recast to know:
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It is not a new home loan
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There is no credit check
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There is no appraisal requirement
If you are happy with your current interest rate, then re-amortizing your mortgage is a great choice if your lender offers this option.
Mortgage recast vs refinance
Let us say you receive a year-end bonus from work. If you are happy with your current interest rate, then you can use that money to pay down the UPB and request a recast. On the other hand, if your interest is higher than current market rates, then it may make more sense for you to refinance for the lower rate.
Here is a quick breakdown of the differences between a recast versus a refinance:
| Mortgage Recast | Mortgage Refinance |
| Same home loan | New loan |
| Fewer fees (typically up to $250) | Closing costs and fees |
| Lower monthly payments based on new principal balance; interest rate and terms stay the same | Different monthly payments, interest rate, and terms |
| Must provide a lump-sum upfront payment towards the UPB (typically 20%) | Options to tap into your home’s equity for cash |
| Quick process once request is submitted | Must go through the entire loan process |
Using a loan recast in a competitive market
Here is an example of a recast mortgage:
You are selling your current home and buying a new one. The problem is the local real estate market is highly competitive. You are worried you will have a hard time competing against cash buyers—especially if there are sale contingencies. Plus, you do not want to sell your current home before buying a new one.
As a strong borrower with a stable income and little debt, you can afford two house payments—your current home and the new home (until you pay off the first loan). After talking to your lender, you decide to buy a new home before selling your current residence. Once you have settled into your new place, you will list and sell the old home. When the sale of your old home closes, you can take your profit and submit a one-time lump sum payment towards the UPB of your new home loan. Then your lender will recast (re-amortize) your loan, resulting in a lower monthly payment.
So, when you are buying in a competitive market and have a home to sell, consider a mortgage recast as one possible solution. Although you would have two mortgage payments for a few months until you sold your old home, this solution relieves the stress of not being able to find a new home once yours sells.
Should I recast my mortgage?
Homeowners have a plethora of options to choose from when it comes to making changes to a mortgage. Deciding if a mortgage recast is right for you will depend on your unique circumstances.
If you want to lower your monthly payments without changing the interest rate and the maturity date, then re-amortizing your mortgage may be the best course of action. For example, if you have a $200,000 loan, then the minimum payment the lender may require could be $40,000 (20% of the UPB).
At the end of the day, it is always best to discuss your options with your Mortgage Servicer and confirm that they can provide a mortgage recast.
SIMILAR ARTICLES
What Is P&I–Principal and Interest–And How Can I Save on My Mortgage?
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Top Tips to Refinance Existing Home Loan
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Top 10 Mortgage Questions Answered
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When Is the Best Time to Refinance?
It is tough to know the best time to refinance. PenFed Credit Union explains when the best time to refinance might be based on different financial situations.
Home Buying Steps
Mortgage Products
Disclosures
1Conventional Loans
Except for holidays, rates are updated Monday through Friday at 10:15am EST. The advertised rates and points are subject to change. The information provided is based on 1.5 discount point, which equals 1.5 percent of the loan amount, and assumes the purpose of the loan is to purchase a property with a 30-year, conforming, fixed-rate loan. Loan amount of $400,000; loan-to-value ratio of 75%; credit score of 760; and DTI of 18% or less. The property is an existing single-family home and will be used as a primary residence. The advertised rates are based on certain assumptions and loan scenarios, and the rate you may receive will depend on your individual circumstances, including your credit history, loan amount, down payment, and our internal credit criteria. Other rates, points, and terms may be available. All loans are subject to credit and property approval.
Rates quoted require a loan origination fee of 1%; not to exceed $1,995. Speak to a PenFed Mortgage Loan Officer for additional details.
2FHA Loans
Except for holidays, rates are updated Monday through Friday at 10:15am EST. The advertised rates and points are subject to change. The information provided is based on 1.25 discount point, which equals 1.25 percent of the loan amount, and assumes the purpose of the loan is to purchase a property with a 30-year, conforming, fixed-rate loan. Loan amount of $400,000; loan-to-value ratio of 96.5%; credit score of 760; and DTI of 18% or less. The property is an existing single-family home and will be used as a primary residence. The advertised rates are based on certain assumptions and loan scenarios, and the rate you may receive will depend on your individual circumstances, including your credit history, loan amount, down payment, and our internal credit criteria. Other rates, points, and terms may be available. All loans are subject to credit and property approval.
Rates quoted require a loan origination fee of 1%; not to exceed $1,995. Speak to a PenFed Mortgage Loan Officer for additional details.
3VA Loans
Except for holidays, rates are updated Monday through Friday at 10:15am EST. The advertised rates and points are subject to change. The information provided is based on 1.375 discount point, which equals 1.375 percent of the loan amount, and assumes the purpose of the loan is to purchase a property with a 30-year, conforming, fixed-rate loan. Loan amount of $450,000; loan-to-value ratio of 95%; credit score of 760; and DTI of 18% or less. The property is an existing single-family home and will be used as a primary residence. The advertised rates are based on certain assumptions and loan scenarios, and the rate you may receive will depend on your individual circumstances, including your credit history, loan amount, down payment, and our internal credit criteria. Other rates, points, and terms may be available. All loans are subject to credit and property approval.
Rates quoted require a loan origination fee of $995.
4Jumbo Loans
Except for holidays, rates are updated Monday through Friday at 10:15am EST. The advertised rates and points are subject to change. The information provided is based on 0.75 discount point, which equals 0.75 percent of the loan amount, and assumes the purpose of the loan is to purchase a property with a 30-year, non-conforming, fixed-rate loan. Loan amount of $1,009,000; loan-to-value ratio of 70%; credit score of 760; and DTI of 18% or less. The property is an existing single-family home and will be used as a primary residence. The advertised rates are based on certain assumptions and loan scenarios, and the rate you may receive will depend on your individual circumstances, including your credit history, loan amount, down payment, and our internal credit criteria. Other rates, points, and terms may be available. All loans are subject to credit and property approval.
Rates quoted require a loan origination fee of 1%; not to exceed $1,995. Speak to a PenFed Mortgage Loan Officer for additional details.
Fixed Rate Advance Lock-In You may lock in an Annual Percentage Rate for Advances during the Advance Period. During your Advance Period, you may choose to have three separate Fixed Rate Advances locked in at any one time, with a maximum of two new Fixed Rate Advances per calendar year. Each Fixed Rate Advance must equal or exceed Ten Thousand Dollars ($10,000.00) and you may not request a Fixed Rate Advance that would cause the amount you owe to exceed your Credit Limit. The only term option for your Fixed Rate Advance is 240 months (“Fixed Rate Advance Term”). However, the term of your Fixed Rate Advance cannot exceed your Repayment Period.
Routing #256078446
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