Selling Your Home? How a Mortgage Recast Can Save You Money
Are you selling a home and planning to use the proceeds for a significant down payment on your new home?
What if your old home doesn’t sell before you close on your new one, and you only have enough for the minimum down payment? No worries—a mortgage recast can help lower your new mortgage payments once your old house finally sells. After you get the proceeds from the sale, you can make a lump-sum payment and ask your lender to recast your loan.
Recasting is also common when a homeowner receives a large amount of money and wishes to lower their mortgage expenses. (Examples include an inheritance, large work bonus, and gifts).
What is a mortgage recast?
A mortgage recast is when a borrower makes a lump-sum payment toward the principal balance of their loan. The lender re-amortizes the mortgage, resulting in a new (lower) balance and monthly payment.
When a mortgage is recast, does the interest rate change?
No, the interest rate remains the same.
Does recasting remove PMI?
Recasting can help remove PMI if the lump-sum payment reduces the loan-to-value ratio below 80%.
What is the purpose of a mortgage recast?
The purpose of a mortgage recast is to lower your monthly payments since your principal balance went down while your interest rate and term remain the same.
What is the cost to recast a mortgage?
Fees associated with recasting vary by the lender. Contact your mortgage servicer to verify their recasting fees.
What is the difference between a recast and paying additional principal?
A mortgage recast reduces the monthly payment amount while paying down the principal alone does not change your monthly payment.
Is there a minimum amount required to recast a mortgage?
Each servicer’s minimum amount varies. Please contact your mortgage servicer to verify their requirements.
What is the difference between a recast and a refinance?
When a mortgage is refinanced, the borrower is applying for a new loan with a new term, interest rate, and monthly payment.
When the mortgage is recast, the borrower pays the lender a lump sum toward the principal. The monthly payment is recalculated/re-amortized based on the new lower principal balance.
Does recasting the mortgage reduce interest?
Yes, recasting can lower the total interest paid over the life of the loan if a significant principal payment is made.
How many payments are required before a customer can recast their mortgage?
The number of required payments varies by each investor. Please contact your mortgage servicer to verify their minimum requirements.
How many times can a borrower recast?
There is typically no limit on how many times you can recast your loan.
What are the Disadvantages of recasting a mortgage?
While recasting updates the monthly payment, it does not decrease the loan term or interest rate. There is also a cost associated with recasting, and more of your cash is tied up in equity.
What types of mortgage programs do not allow for recasting?
A borrower cannot recast a government-backed loan. Under current rules, FHA, USDA, and VA loans are ineligible for recasting.
Is a mortgage recast the right option for me?
One of the best ways to determine whether you should move forward with a mortgage recast is to consider what you hope to get out of your loan. Do you want to lower your monthly payments, or are you looking to access your equity, too?
There are several options for lowering your payment, but sometimes, it’s hard to figure out which is right for you. Give me a call to discuss if a mortgage recast is the right strategy for you.
The BankSouth Mortgage Advantage:
Experience the speed of ReadyApprove from BankSouth Mortgage, where you can secure conditional approval for conforming loan limits within hours. You’ll be armed with the confidence to quickly submit an offer, and the seller will see you as a serious, prepared buyer. Have peace of mind with our FREE one-time rate float-down and no lender fee refinance options!
Take advantage of our Buy Now, Refinance Later with a No Lender Fee Refinance* option for buyers who are purchasing currently at increased interest rates. Homebuyers who started their loan application with BankSouth Mortgage on or after June 15th, 2023, and close their loan with BankSouth Mortgage will be eligible for exclusive savings. Available on primary residence only and must be used within 60 months of the close date.
*Must refinance after 6 months from the 1st payment date and within 5 years of the close date. Available for new applications on or after 6/15/2023. Subject to credit and property approval. Additional conditions may apply. Terms are subject to change. “No Lender Fees” only apply to origination charges.
Blog post date: Thursday, June 6, 2024
