Refinancing is a popular strategy for homeowners who want to lower their monthly mortgage payments. But what if you don’t want to go through the hassle and cost of a refinance? How can you lower your mortgage payment without refinancing your home? There are several ways to accomplish this goal. Recasting is one of them.
Mortgage Recasting Explained
Some mortgage lenders allow their customers to reduce their monthly payments by recasting their existing loans. This practice is also referred to as re-amortizing.
Here’s how it works. You pay a certain amount of money to reduce the unpaid principal balance on your loan, and the new (lower) amount is then re-amortized. The interest rate and the term stay the same. But because you’re amortizing a lower principal amount, you end up with a lower monthly mortgage payment — without refinancing your home.
Essentially, you are reducing your monthly payments over the remaining term of the loan, while keeping the same interest rate.
There’s usually a fee involved. The fees for a mortgage recast usually range from $200 to $350. But this is much less than the cost of refinancing, which can add up to thousands of dollars.
This will make more sense with an example. Here’s an example of recasting, courtesy of the Wall Street Journal:
“A person with a 30-year $300,000 fixed-rate mortgage and an interest rate of 4.75% who recasted one year into the loan by putting in $60,000 toward the principal would trim his balance to $235,371. Assuming there were 29 years left on the loan, that would result in a monthly payment of $1,247 instead of the original $1,565.”
But not all lenders offer this kind of service, so you’ll have to check with your current lender.
Lowering Your Monthly Payments Without Refinancing
Some homeowners are in a good position to refinance their homes, thereby reducing their monthly mortgage payments. They have good credit. They have plenty of equity. And they have money in the bank to cover their refi-related closing costs.
But not everyone falls into this category. Some homeowners have shaky credit or other problems that prevent them from refinancing. Or maybe they’re equity is too low to qualify for a refinance. Maybe they can’t afford the lender fees. These are common obstacles that can prevent a homeowner from refinancing.
That’s where recasting comes into the picture. In certain scenarios, it gives homeowners a way to lower their mortgage payments without refinancing their existing home loans.
But it’s not the kind of service lenders advertise. They tend to put their advertising dollars toward generating new loans. To put it plainly, they make a lot more money by refinancing existing loans, rather than recasting them. So if you want to find out if you can recast your mortgage to lower your monthly payments, you’ll have to be proactive and contact your lender to request it.
Requirements Vary from One Lender to the Next
It’s also important to understand that the lender might not have the final say as to whether or not you can recast your loan. Sometimes there are other investors involved, and they have to give their “blessing” as well.
According to Kris Yamamoto, Senior VP of Corporate Communications for Bank of America:
“Upon request to recast … we would confirm that the investor of the loan allows recasting and ensure the customer is current on their payments. Typically, only fixed-rate loans can be recast, but adjustable-rate mortgages may be considered on a case-by-case basis.”
This is just how Bank of America does it. Every lender is different, so the requirements will vary depending on who you’re working with.
Additionally, certain types of home loans might be ineligible for recasting. Conventional, conforming mortgage products are typically eligible for recast, while FHA and VA generally are not. I stress that this is a general rule — so don’t take it as gospel. Find out for sure by contacting your lender.
The bottom line is that mortgage recasting could help you lower your monthly payments without refinancing your home. So it’s worth asking about, at the very least.