A recast fee is a one-time charge that lenders may impose when you recast your mortgage. This fee typically ranges from a few hundred to a few thousand dollars depending on the lender and the size of your loan.
Here’s a breakdown of what a recast fee is and how it works:
- What is it? A recast fee is a charge that lenders may impose when you make a lump-sum payment towards your mortgage principal and request that your monthly payments be recalculated based on the new, lower balance. This essentially “recasts” your loan, resulting in lower monthly payments for the remaining term of your mortgage.
- How much is it? The recast fee amount varies depending on the lender and the size of your loan. Typically, it ranges from a few hundred to a few thousand dollars. Some lenders may charge a flat fee, while others may charge a percentage of the loan amount.
- Why is it charged? Lenders charge a recast fee to cover the administrative costs associated with recalculating your loan payments. This includes the cost of updating your loan documents, notifying your servicer, and adjusting your escrow account.
- Is it worth it? Whether or not a recast fee is worth it depends on your individual circumstances. If you are planning on making a large lump-sum payment towards your mortgage principal and you want to lower your monthly payments, then a recast may be a good option for you. However, if you are only making a small lump-sum payment or if you are not sure if you will be able to keep up with the lower monthly payments, then a recast may not be the best option for you.
Here are some additional things to keep in mind about recast fees:
- Not all lenders offer mortgage recasting. Some lenders may not offer mortgage recasting at all, while others may only offer it under certain circumstances. It is important to check with your lender to see if they offer mortgage recasting and what their fees are.
- There may be minimum payment requirements. Some lenders may require that you make a minimum lump-sum payment in order to qualify for a recast. This minimum payment amount may be a fixed dollar amount or a percentage of your loan principal.
- You may need to meet certain eligibility requirements. In addition to meeting the minimum payment requirements, you may also need to meet certain eligibility requirements in order to qualify for a recast. These requirements may vary depending on the lender, but they may include having a good credit score and a history of on-time payments.
If you’re thinking about refinancing your mortgage, make sure it’s the best choice for you by carefully weighing the costs and benefits. Additionally, you ought to get in touch with your lender to go over your eligibility and obtain an estimate for the recast fee.
Here are some additional resources that you may find helpful:
- Rocket Mortgage: Recast Mortgage FAQs: https://www.rocketmortgage.com/learn/recast-mortgage-faqs
- Bankrate: Mortgage Recasting: What It Is And How It Works: https://www.bankrate.com/mortgages/what-is-mortgage-recasting-and-why-do-it/
How does mortgage recasting work?
When you recast your mortgage loan, you make a large payment toward the principal balance. Your lender then re-amortizes the loan to reflect the new lower balance. As a result, your monthly payments and the total amount of interest you pay on the loan will go down. The rest of your loan terms remain the same, including the term length and interest rate.
The process comes with an administrative fee that varies by lender but typically is a few hundred dollars. How mortgage recasting can lower your mortgage payment.
You took out a $400,000 mortgage loan at a 5% interest rate with a monthly payment of $2,147. Ten years later, your outstanding balance was $325,368. You decided to recast a mortgage for a $250 fee. You put $60,000 toward the principal balance to re-amortize the loan, reducing the balance to $265,368.
After recasting, your monthly payment decreased to $1,751 — $396 less than what you used to pay. In this scenario, youll pay $34,000 less in total interest throughout the rest of the loans life.
Our top picks of timely offers from our partners
Your mortgage payment is probably the largest expense in your monthly budget. Youve probably heard a lot about refinancing and how it can help by lowering your interest rate. But theres another way to decrease your mortgage payment without closing costs and rate shopping — mortgage recasting.
Mortgage recasting is making a large lump-sum payment on your mortgage for your lender to re-amortize it. CNBC Select outlines how this approach works and what to consider when deciding whether its right for you.