These articles are for educational purposes only and provide general mortgage information. To learn more about the advantages of a mortgage recast and find out how to recast your loan, contact a Home Lending Advisor.
There are several options for lowering your payment, but sometimes it's hard to figure out which one is right for you. Do you want to lower your monthly payments, or are you looking to access your equity as well? One of the best ways to determine whether you should move forward with a mortgage recast is to look at what you hope to get out of your loan. How to determine whether a mortgage recast is right for you Additionally, there may be restrictions regarding how much you owe, how much you've paid and your payment history. Not all lenders offer mortgage recasts, and not all loans are eligible for a recast (for example, FHA/VA and USDA loans do not permit a recast option). If you want to take equity out of your home, you have to refinance. In this case, refinancing might be a better option. However, if rates are down, a recast won't allow you to take advantage of a more competitive rate. This is an advantage if mortgage rates are up since you last financed your loan. Here are some potential disadvantages of a mortgage recast: However, your payment may not be reduced as much as it would with a refinance. With a mortgage recast, there's very little required so the process is much faster.įor many people, a mortgage recast is a great way to reduce monthly payments. Refinancing a home involves a lot of the same processes as your original mortgage application. With a recast, the length of your loan doesn't change. When you refinance a loan, you may have to increase your loan term.
Your monthly payments will be based off of the new loan balance if you do a recast. If you receive a large cash payment, such as a bonus or inheritance, and apply a large portion of it towards your loan principal, you'll reduce the amount you owe. Some of the cases where a mortgage recast may be a good idea include: Mortgage recasts are a great option for homeowners who want to reduce their monthly payment without changing the terms of their loan. When should I consider a mortgage recast? A recast doesn't affect your interest rate, remaining loan term or equity. With a mortgage recast, the only thing you're doing is recalculating your monthly payment. When you refinance your home, you submit an application to create a new loan with a different interest rate and different term, or to take out equity. If you're interested in a mortgage recast, talk to your lender to see if it's an option. It's important to understand that mortgage recasts aren't automatic, and they aren't offered by all lenders.
Because a recast is based on the remaining balance of your loan, your monthly payment could decrease. But what happens if you make an extra payment or pay a little more each month? Or make a lump-sum payment? When you pay towards your mortgage ahead of schedule, it may make sense to request a mortgage recast. Every time you make a payment, your balance goes down. When you purchase a home, your lender calculates your mortgage payments based on the principal balance and the loan term. A mortgage recast is when a lender recalculates the monthly payments on your current loan based on the outstanding balance and remaining term.