If you are a homeowner with extra cash on hand and would like to reduce interest payments, you can lower your monthly mortgage payment without refinancing! This is known as a mortgage recast.
But how many times can you actually recast your mortgage? The answer is it depends. Some lenders have no limit while others may restrict you to one or two recasts. It all comes down to the lender’s specific policies.
The following information will help you understand mortgage recasts and their maximum number of uses:
What is a mortgage recast?
A mortgage recast is when you make a lump sum payment towards your principal balance, which reduces the amount of money you owe on your loan This, in turn, lowers your monthly payments for the remainder of the loan term.
Why would you want to recast your mortgage?
There are a few reasons why you might want to recast your mortgage:
- Lower your monthly payments: This is the most common reason people choose to recast. By reducing your principal balance, you’ll have a smaller monthly payment, which can free up some extra cash each month.
- Pay off your mortgage faster: If you keep making the same monthly payment after a recast, you’ll end up paying off your mortgage faster. This can save you a significant amount of money in interest over the life of the loan.
- Reduce your interest payments: Even if you don’t change your monthly payment, you’ll still pay less interest overall because you’ve reduced your principal balance.
How many times can you recast your mortgage?
As we mentioned earlier, the number of times you can recast your mortgage depends on the lender. Some lenders have no limit, while others may restrict you to one or two recasts.
Here are some factors that can affect how many times you can recast your mortgage:
- The type of loan you have: Government-backed loans, such as FHA, USDA, and VA loans, typically cannot be recast.
- The lender’s policies: Each lender has its own rules about recasting mortgages. Be sure to check with your lender to see how many times you can recast your loan.
- Your creditworthiness: If you have good credit, you’re more likely to be approved for a recast.
Here are some examples of how many times you can recast your mortgage with different lenders:
- Quicken Loans: No limit
- MortgageMark: Once during the life of the mortgage
- Fannie Mae: No limit
- Freddie Mac: No limit
It’s crucial to remember that even if your lender permits you to refinance your mortgage more than once, you might decide not to. There is usually a cost associated with each recast, and each time requires a sizable principal reduction. Thus, before determining whether a recast is right for you, it’s crucial to consider the advantages and disadvantages.
Here are some additional things to keep in mind about mortgage recasts:
- There is typically a minimum principal reduction requirement. This means you’ll need to pay down a certain amount of your principal balance before the lender will allow you to recast your mortgage. The minimum amount varies by lender, but it’s usually around $10,000.
- You’ll need to make on-time monthly payments. In order to be eligible for a recast, you’ll need to have a good payment history. This means making all of your mortgage payments on time for at least the past 12 months.
- There may be a fee associated with a recast. The fee typically ranges from $250 to $500.
- It can take 45-60 days to complete a recast. During this time, you’ll need to continue making your regular mortgage payments.
If you’re considering a mortgage recast, it’s important to talk to your lender to see if you’re eligible and to learn about their specific requirements. You should also compare the costs and benefits of a recast to other options, such as refinancing.
Here are some additional resources that you may find helpful:
How Many Times Can I Recast a Mortgage?
Home loan recasts are typically only allowed once during a mortgage’s lifetime so plan accordingly. To get the most benefit from a mortgage recast, consider waiting until you have a cash windfall. This will allow you to pay a larger lump sum – and reduce your mortgage sooner.
Tommy Buys a Home
Let’s suppose it’s March and our best pal, Tommy, closes on a 30 year fixed-rate mortgage for $400,000. We’ll assume he has a 6% interest rate with a principal and interest payment of $2,398 per month.
Now let’s assume exactly one year later Tommy wins $50,000 with a lotto scratch-off ticket. Tommy wants to put this newfound fortune towards his mortgage. After a year of timely mortgage payments, Tommy currently owes roughly $395,000 on his home loan. Tommy can either do a “normal” principal reduction or he can recast a mortgage.
A normal principal reduction is simple. Tommy has the option to pay off his loan principal with a $50k check, which will reduce the balance from $395,000 to $345,000. This will reduce his loan term to 22. 3 instead of the original 30 years since he’ll continue to pay his regular monthly payment of $2,398.
By reducing the principal, the total amount of mortgage interest paid on the loan will be reduced from approximately $463,350 to $290,850. That’s a reduction of $172,500 in paid interest. Not a bad way to spend $50,000 Tommy!.
Tommy’s second option is a mortgage recast. Tommy can give the mortgage servicer a call and request a recast rather than the standard principal reduction.
They explain that it’s a $350 fee and provide details on how to send the payment. Tommy does what they say.
First the mortgage servicer applies the $50k to principal for a new $345,000 balance. Secondly, they amortize the loan with the existing 6% rate over the remaining 29 years of the loan. Tommy is doing this precisely a year after closing on a 30-year note, which is why the 29 years are included. ).
Tommy now has a payment of $2,094 per month. That’s $304 lower per month than the original $2,398. This recast differs from the “normal” principal reduction in that the loan will still be in effect for the entire 30-year period.
The amount of total interest paid will be around $407,600. The result is about $55,700 less interest paid than the “normal” 30 year loan without the $50k applied.
Dave Ramsey’s Thoughts On Mortgage Recasting
FAQ
What are the disadvantages of recasting a mortgage?
Is it better to pay down principal or recast?
What is the average fee to recast a mortgage?
Is recasting better than refinancing?
What happens if I recast my mortgage after 10 years?
After 10 years, your outstanding mortgage balance is $162,684. You then decide to make a $50,000 lump sum payment to recast the loan, plus pay a $250 recasting fee. That reduces the balance of your loan to $112,684. Your monthly payment for the next 20 years will drop to $744, which is $330 less than your original payment.
How many times can a loan be recast?
You must make at least two consecutive monthly payments at your current payment amount before a loan can be recast. There may be a small fee (typically around $250) associated with the recast. There is not typically a limit on how many times someone can recast their loan.
Can You recast a mortgage?
Meanwhile, your loan’s schedule of repayment, or mortgage amortization, is altered, resulting in reduced monthly payments for the remainder of the loan. Not everyone can recast a mortgage. For example, anyone with a government loan backed by Ginnie Mae is excluded from recasting. These include any FHA, USDA or VA loans.
How much money do you need to recast a mortgage?
Most lenders require the borrower to pay a minimum amount of money toward the principal before qualifying for a recast (usually $10,000), though it can also be a percentage of your principal. Although $10,000 must be put toward the principal, Rocket Mortgage doesn’t require that it come in the form of a lump-sum payment. 3.