The tabs below offer a mortgage calculator and current mortgage refinance rates. The calculator can be used to either estimate payments for recasted or refinanced loan. It is set to a 15-year loan by default, though you can adjust it to any term you desire. You can use the calculator and rate table to get an idea of the local market conditions and use those to deterimine the prosective cost of refinancing to see if mortgage recasting would be a better option for your needs.
Use this calculator to estimate your monthly loan payments. We also publish current refinance rates beneath the calculator to help you compare local offers and find a lender that fits your needs. Beneath the mortgage rate table we offer an in-depth guide to recasting your home loan.
The following table shows current 30-year mortgage rates available in New York. You can use the menus to select other loan durations, alter the loan amount, or change your location.
Managing monthly payments is tough when you have multiple bills to worry about. Aside from your monthly mortgage, you’re probably dealing with car payments and student loans on top of costly living expenses. And if you have children and extended family, you’re likely spending more.
According to the U.S. Bureau of Labor Statistics Consumer Expenditure Survey, the average household spent around $5,102 per month in 2018. Out of this monthly expense, 33 percent went directly to housing costs alone. If you are paying down mortgage, you should be more conscientious of where your money goes. Otherwise, you might have trouble making monthly payments in the long term.
Apart from earning more or cutting costs, there are other ways to increase your cash flow. The key lies in successfully reducing your loan payments. And it’s something that can be done if you recast your mortgage. That’s right: it doesn’t always entail refinancing a loan.
In this article, we’ll define what mortgage recasting is and how it works. We’ll look into it’s benefits and disadvantages, as well as how it compares to mortgage refinancing. All in all, this guide should give you a good idea of when recasting might work for you.
What is Mortgage Recasting?
Recasting a mortgage is the process of making a large lump sum payment to reduce your principal balance. The remaining balance is then recalculated into a new amortization schedule. In effect, your monthly payment is reduced based on the new balance.
Homeowners typically recast their loan to trim down their monthly payments. And with a lower principal balance, you lessen the amount of interest spent over the life of the loan. Take note, however, that it does not reduce your interest rate. It stays the same.
How is this different from refinancing? Mortgage refinancing is taking out a new loan to change your existing loan’s terms. And since it’s another form of financing, you may not always qualify. As we’ll discuss below, refinancing has many benefits. However, it takes longer and is often more expensive than recasting.
People typically choose refinancing for the incentive of low interest rates and more favorable payment terms. They may also use it to change from an adjustable-rate mortgage (ARM) to a conventional loan, and vice versa.
Recasting is favorable when you have large liquid funds that you can readily use to pay down your principal (ex. inheritance windfalls, a large fund for investments, etc.). It’s also a good option if you want to reduce your monthly payments without the hoops and loops of refinancing. Other good reasons for recasting your loan may include the following:
What is the Common Reason for Recasting?
One of the most common reasons for recasting is when a consumer buys a new house but has not yet sold the previous one. When the previous house is sold, the consumer may want to put the profits of the sale towards paying the new mortgage. To do this, he may ask his lender for a loan recast which will re-amortize the new loan.
Recasting is a direct way of paying down your mortgage and reducing your interest. If you make this your goal, you can build savings for a lump sum fund and eventually have your mortgage recasted even after 5 or so years. Again, it is a more convenient option than refinancing.
Mortgage refinancing is the process of securing an entirely new mortgage to reduce your interest rate and lower your monthly payments. It’s a taxing process that involves credit checks and appraisals. Ideally, you need equity on your home and a high credit score to qualify for lower rates.
On average, appraisals range between $600 to $800, but that’s reliant on the size of your home and where it is located. And if you want to qualify for refinancing, you’ll need a credit score between 620 to 680. Even then, if you want favorable rates, homeowners with credit scores at 740 and above usually get the best rates. If you have average to low credit score, it would be hard to get any refinancing.
Furthermore, refinancing entails expensive fees. Give or take, it can cost around $1,500 to $5,000 and up. This includes appraisals, origination fees, recording fees, and other required housing certifications. On top of that, you need to comply with credit checks that might impact your credit score negatively. Hard inquiries during refinancing can temporarily cause your credit score to go down, according to Experian.
Sometimes, mortgage refinancing may not be worth the cost and the hassle. This is especially true if you won’t score lower rates. If you do not qualify for the ideal interest rate, it won’t hurt to try recasting. Mortgage recasting allows you to reduce your monthly payments. But again, your loan will retain the same interest rate and payment term.
Mortgage Refinancing or Mortgage Recasting?
Traditionally, refinancing is beneficial if you can reduce your interest rate by at least 2 percentage points. Some lenders say 1 percent is enough. You can use our mortgage refinance breakeven calculator to see how long it will take for your refinance to pay for itself.
You can apply your lump sum savings toward your mortgage when you refinance to effectively do both at the same time.
Mortgage recasting and financing both help reduce your monthly payments. Though they seem similar, they employ different strategies with unique benefits and disadvantages. The table below lists down the pros and cons of each option:
| Strategy | Mortgage Recasting | Mortgage Refinancing |
|---|---|---|
| Pros | Reduces monthly payments No credit checks or appraisals needed Lowers interest paid for the entire loan Does not take as long as refinancing It won’t lower your credit score It’s affordable or free | Reduces monthly payments Lets you shorten your term Lets you lower your interest rate Obtain great savings with a lower rate You can refinance to an ARM or conventional loan |
| Cons | It does not shorten your loan term Your interest rate remains the same It requires a large amount of cash You can’t change to an ARM | Requires credit checks and appraisals More requirements take longer The closing cost is expensive You might not qualify for lower rates May temporarily lower your credit score |
Generally, recasting is a convenient option because it only entails paying a large sum to have your amortization schedule and payment readjusted. However, the benefits are limited. You cannot refinance to shorter terms (30 years to 15 years) or switch to an adjustable-rate mortgage. Your interest rate stays the same. For instance, if your current mortgage is at 4.5 percent APR, you cannot refinance to a lower rate at 2.5 percent APR. It’s a missed opportunity. Refinancing is a good deal when you get a lower rate that breaks even with fees within 24 months.
If you have the option to refinance to a much lower rate, you will save more money and time. That said, if refinancing is really not an option for you, your next best move is to try recasting.
Once your payment schedule is recalculated, the amount paid toward your principal will be higher compared to the interest. It will also significantly reduce your monthly payment.
Here’s an example to give you a better idea of how it works.
Let’s suppose you have a large inheritance worth $250,000 from a relative that passed away. And you have a new 30-year fixed term mortgage with an original loan amount of $600,000.
Without recasting, you can pay down your original loan amount from $600,000 to $350,000. Your monthly payment will still be $2,864, but majority of your monthly payments will now go toward the principal and less on the interest.
But with recasting, the remaining $350,000 will be reamortized into a new 30-year amortization schedule. This considerably lowers your monthly mortgage payment from $2,864 to $1,668.56. That’s savings worth $1,195.44 which can be used for other important expenses. Let’s look at a side-by side comparison of how much you can save with recasting:
| Loan Details | Without Recasting | After Recasting |
|---|---|---|
| Principal amount | $600,000 | $350,000 |
| Term | 30-year fixed rate | 30-year fixed rate |
| Interest rate | 4% APR | 4% APR |
| Monthly payment | $2,864 | $1,668.56 |
| Total Interest | $431,382.46 | $252,349.16 |
Apart from reducing your monthly payments, you significantly lessen the interest you pay over the life of the loan. Based on the example above, the total interest is cut down from $431,382.46 to $252,349.16. This means you will save $179,033.30 on interest charges.
To build your monthly cash flow, you must significantly reduce your principal balance. This is why it makes sense to refinance with more favorable terms (lower rates, etc.) or recast your mortgage.
Mortgage Recasting Tip
If you do not have large funds for recasting right now, you can start saving now. After 5 or even 10 years, you can recast your 30-year mortgage and still save a lot on interest charges. You can also make extra payments today to lower your outstanding balance to where you build more equity without needing to formally recast the loan, and you can refinance later when rates fall.
Not all mortgages qualify for recasting. Mortgage recasting is only permitted when you have a conforming conventional loan. To be specific, these are mortgages serviced by Fannie Mae or Freddie Mac.
Under the law, homebuyers cannot recast government-insured loans such as Federal Housing Authority loans (FHA),Veterans Affairs loans (VA), and U.S. Department of Agriculture loans (USDA). These mortgages already provide plenty of benefits for consumers, such as subsidized low interest rates and very low down payments. If you need to change terms, you must apply for refinancing. Moreover, most jumbo mortgages are usually not eligible for recasting. To be sure, you must transact with a lender that offers loan recasting options.
Now and then, you might learn about recasted jumbo loans, ARM loans, and negative amortization mortgages. Note that it depends on the lender and it’s done on a case-to-case basis. Nonetheless, before presuming it’s not viable, be sure to ask your lender if your mortgage can be recasted.
In the case of negative amortization mortgages, it is structured to accommodate a scheduled payment that is less than the loan’s interest charge. This creates a deferred interest which is added to the principal balance. When this happens, your principal loan increases instead of decreases. Negative amortization loans are also known as payment option adjustable-rate mortgages or pay Option ARM. This mortgage structure allows homebuyers the option to pay all their principal and interest or just pay a portion of the interest.
Because of the increasing principle, negative amortization loans are must be recasted to reamortizatize the schedule. If not, the loan will not be paid off in its agreed term date.
If you haven’t heard of mortgage recasting, it’s because most lenders and banks do not normally advertise it. Though it’s limited to conforming conventional loans, most large banks commonly offer it. Big banks such as Wells Fargo, Chase, and Bank of America are likely to offer this mortgage option. Fruthermore, some long-term mortgages come with a prescheduled recast date. This is when a lender recalculates your amortization schedule based on your loan’s remaining principal balance and term.
Tips to Qualify for Recasting
To qualify, you must have a history of consistent on-time payments. It’s also crucial to have a substantial amount of cash to reduce your principal balance.
Lenders that accommodate recasting require a lump sum amount to pay down the principal. This is usually at least 5 percent of your principal balance. For instance, if your loan amount is $500,000, 5 percent of it is $25,000. But depending on your lender, some may ask for at least $5,000. Of course, the larger the lump sum payment, the more money you can free up to increase cash flow.
There may be a small recasting fee which varies per lender. This is usually around $300 (nowhere as expensive as refinancing). Otherwise, some lenders may offer to recast loans for free.
Recasting your mortgage is a great option if you cannot qualify for refinancing. Likewise, you can take this route if you do not want to go through the painstaking process of refinancing. Recasting your loan allows you to significantly pay down your principal while reducing your monthly mortgage payment. But unlike refinancing, it does not allow you to change your loan term or reduce your interest rates.
Consider recasting if you have a large amount of money that can go towards paying your mortgage. You can get this from windfalls like inheritance funds, large bonuses, or a significant sum from business profits. Recasting will help ease your cash flow and build your savings.
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