What Is a Mortgage Recast?

A mortgage recast is when a borrower makes a large, lump-sum payment toward the principal of their mortgage, resulting in a loan reduction that reflects the new balance. Let’s take a closer look at what a mortgage recast is and how it works so you can determine if it makes sense for your situation.

Definition and Example of a Mortgage Recast

A mortgage recast is when your current lender recalculates the monthly payments on your loan based on the outstanding balance and remaining term. Often, when you're thinking about recasting your mortgage, you’ll put down a lump sum of money toward the principal. While your interest rate and term will remain the same, the lender will then calculate a new monthly payment based on the reduced balance.

• Alternate name: Re-amortization

Let’s say your original mortgage was for $200,000. You recently received a bonus at work and decide to pay an additional $15,000 toward the principal. You’re now on track to pay off your mortgage sooner with the same monthly payment amount. If you’re interested in a lower monthly payment, however, you can ask your lender to recast your balance over the remainder of your loan.

How a Mortgage Recast Works

Once you decide you’d like a mortgage recast, reach out to your lender to find out whether a mortgage recast is possible. If it is, ask them about the minimum amount you must put down, then carefully complete the mortgage recast application from your lender and make your lump-sum payment.

Your lender will then restructure your payment schedule for the remainder of your loan term to account for the lump-sum payment. The term and your interest rate will stay the same, but your monthly payments will be lower. 

Mortgage Recast vs. Mortgage Refinance

While both a mortgage recast and mortgage refinance can save you money on your mortgage, they’re not the same. With recasting, you pay a significant amount of your loan balance so your lender can lower your monthly payments.

If you decide to refinance, you’ll replace your current loan with a new one. Depending on the interest rate you land and your financial situation, refinancing can allow you to lower your monthly payments, reduce the amount you pay in interest, pay off your mortgage faster, and use your equity to access cash as needed.

Pros and Cons of a Mortgage Recast

Pros Explained

• Lower monthly mortgage payment: A mortgage recast can reduce the amount you owe on your mortgage every month. This will free up your cash flow and give you some extra money to put toward debt, savings, and other financial goals.
• No closing costs: In most cases, you can recast your mortgage without paying closing costs. Closing costs on a refinance, for example, can add up quickly, so this is a huge plus.
• Same rate and term: Even though a mortgage recast will lower your monthly mortgage payment, it won’t change your interest rate and term. You won’t have to worry about a higher rate or a longer or shorter term.

Cons Explained

• Not offered by all lenders: If you want to move forward with a mortgage recast, you’ll have to go through your current lender. However, there’s no guarantee they will offer it. In addition, if you have a government-backed mortgage, a mortgage recast is not an option.
• Often requires a large lump-sum payment: Different lenders have different minimum requirements for initiating a mortgage recast, and unless you were substantially overpaying your mortgage for an extended period of time, it will involve a large lump-sum payment. Unless you received an inheritance, bonus, or commission check, for example, it might be hard to come up with such a large chunk of change.
• There may be a fee: Many lenders charge a recast fee, so inquire before initiating the process.

If you want to save money on your mortgage but don’t want to recast or are unable to, refinance to a lower interest rate, make one extra payment each year, or round up your mortgage payment each month to the next highest $100 amount.

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