Making a Large Payment on Your Mortgage: Recast vs. Refinance

So you’ve come into some extra cash and you’re thinking about putting it towards your mortgage. That’s a fantastic idea! But before you jump in, it’s important to understand the different ways you can use that money and the impact it will have on your monthly payments.

Recast vs. Refinance: Two Paths to Lower Payments

There are two main options when it comes to using a lump sum to lower your mortgage payments: recasting and refinancing. Both options can save you money on interest over the life of your loan, but they work in different ways.

Recasting Your Mortgage:

• What it is: Recasting your mortgage involves making a lump sum payment to your lender, who will then recalculate your monthly payments based on the new, lower balance. This means your monthly payments will be smaller, but your interest rate and loan term will remain the same.
• Who it’s good for: Recasting is a good option if you want to keep your current interest rate, which may be lower than current market rates. It’s also a good option if you don’t want to pay closing costs associated with refinancing.
• Things to consider: Not all lenders offer mortgage recasting, so be sure to check with your lender first. Additionally, there may be a minimum amount you need to pay to qualify for a recast.

Refinancing Your Mortgage:

• What it is: Refinancing your mortgage involves taking out a new loan with a different interest rate and/or loan term. This can lower your monthly payments, shorten the life of your loan, or both.
• Who it’s good for: Refinancing is a good option if you can get a lower interest rate than you currently have. It’s also a good option if you want to change the term of your loan, such as shortening it to pay off your mortgage faster.
• Things to consider: Refinancing typically involves closing costs, which can add up. You’ll also need to qualify for a new loan, which means meeting the lender’s credit and income requirements.

Which Option is Right for You?

The best option for you will depend on your individual circumstances Here are some factors to consider:

• Your current interest rate: If your current interest rate is already low, refinancing may not make sense. Recasting would be a better option in this case.
• Your financial goals: Do you want to pay off your mortgage faster? Do you want to lower your monthly payments? Your goals will help you determine which option is right for you.
• Your risk tolerance: Refinancing involves taking on new debt, which comes with some risk. If you’re not comfortable with taking on more debt, recasting may be a better option.

Making the Most of Your Extra Cash

Regardless of your decision, paying off a large portion of your mortgage early is a terrific method to reduce interest costs and increase the equity in your house. You can make the most of your extra money and accelerate the achievement of your financial objectives by carefully weighing your options and selecting the best course of action for you.

Additional Resources:

• Bankrate: Mortgage Recasting: What It Is And How It Works
• The Balance: How a Lump-Sum Payment Affects Your Mortgage

Frequently Asked Questions:

• Can I make a large payment on my mortgage without recasting or refinancing?

It is possible to make a sizable mortgage payment without having to refinance or recast your loan. This will lower the total amount of interest you pay on the loan as well as your principal balance. However, unless you expressly ask your lender for a recast, it won’t alter your monthly payments.

• How much do I need to pay to recast my mortgage?

The minimum amount you need to pay to recast your mortgage will vary depending on your lender. Some lenders may require a minimum payment of $5,000, while others may require a higher amount.

• Are there any fees associated with recasting my mortgage?

Some lenders may charge a fee for recasting your mortgage. The fee can vary depending on the lender, but it is typically a few hundred dollars.

• How long does it take to recast my mortgage?

Depending on your lender, the time it takes to recast your mortgage will change. However, it is typically a fairly quick process, taking only a few weeks.

• Can I recast my mortgage more than once?

Yes, you can recast your mortgage more than once. However, you will need to meet the lender’s requirements each time you do so.