What is Recast Mortgage?

‍61.5% of American homeowners have a mortgage on their homes. The outstanding mortgage debt since 2019 has grown to nearly $3 trillion. If you don’t want to fall into this frenzy, you should find a solution to help your cause.

A recast mortgage or recast loan allows you to pay a lump sum towards the mortgage, reducing monthly payments and interest. However, if you are considering recasting a loan, you’ll require knowledge of the legal landscape to secure the loan.

A recast mortgage is not automatic or offered by all lenders in the market. At reAlpha, we can help you get the best lenders by using our one-of-a-kind AI framework.

A mortgage recast allows lump sum payment on the loan to reduce its outstanding balance. Your lender will reamortize the mortgage loan with a lower monthly payment with the same loan term or interest rates.

Not all mortgages can be recast in a standard sense. Typically, you can’t recast a USDA, VA, or FHA loan. However, lenders might try mortgage recasting if you are struggling to pay off the loan. 

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Once you have a certain amount in hand, you will be ready to go ahead. The process of recasting a mortgage takes between 45 to 60 days to complete. So, here is the process:

1. Contact Your Lender- The first step when you plan to recast a mortgage is to contact a reliable lender. Here, you need to get important details about your mortgage recast requirements and criteria.

2. Review Eligibility and Guidelines- Check the eligibility guidelines to ensure you fit the bill. For example, any government-backed loans cannot be recast.

3. Payment- Calculate the payment you want to pay towards the mortgage. The amount can vary from one lender to the other, but it has to be a minimum of $10,000.

4. Calculate Principal- Subtract the lump sum with the outstanding mortgage and find your new balance.

5. Find Your New Lender-Calculated Loan Amount- Once you have made the payment and filled in the paperwork, you’ll receive a notification of your new monthly payment. This can take a few months. So, continue making your regular payments till it is approved.

Not every borrower will qualify for a mortgage recast. If you qualify for it, then you are required to meet some basic requirements:

• No Government-Backed Loan- As mentioned above, you cannot recast home loan if you have any government-backed loans. Generally, recasting applies to conventional loans.
• Meet Minimum Principal Reduction Standards- A lender requires you to pay a certain amount in principal to recast a loan.
• Satisfy Equity Requirements- You may need to have a certain equity in your loan if you want a recast to qualify.
• Good Payment History- Lenders will only recast a loan if you have a good history of making payments on time.

A lender should offer you the information that you need to calculate the mortgage. However, you can calculate it yourself to better understand it. You can use a mortgage recast calculator, but you can also do it manually.

For example, you have a 30-year mortgage of $300,000 at a 6.5% interest rate. The monthly payment will be $1,887.76.

Suppose you make a lump sum payment of $50,000; your new balance will be $250,000. This will lower your monthly payment to $1,573.05. So, through a loan recast, you have a monthly savings of $314.71.

Find the Perfect Mortgage for Your Dream Home with Be My Neighbor.

Compare options, calculate payments, and get expert guidance—all in            one place.

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A mortgage loan recast has its advantages and disadvantages. Before you make the decision to recast, you should look into them.

• Lower Monthly Payments- Once you have paid a big sum for recasting, the monthly payment becomes low and is manageable.
• No Impact On Credit Score- In a loan recasting, there is no impact on credit score. So, there is no need to meet a credit score requirement.
• Maintain Current Loan Terms and Interest Rates- In recast, you’ll maintain the same interest rates and loan terms. The principal amount will be lower, and you’ll have to shell out less in interest.

• Recasting Fee- Every time you recast, you are expected to pay a fee. The amount varies across different lenders.
• Loan Term Doesn’t Shorten- When you are recasting a mortgage loan, it will only shorten the principal payment. The time of the loan doesn’t shorten.
• Can’t Take Out Any Equity- If you opt for a recast, your money gets tied toward paying off your home. In simple terms, you don’t get access to it unless you get a home equity loan or refinance it.

Recasting and refinancing have their differences, even though they can help you save a lot of money. Let’s compare them below.

• Refinancing a Mortgage- In refinancing, you have to apply for a brand-new mortgage and pay closing costs. The new loan will give you a new interest rate while eradicating the existing loan. Through refinancing, you will get a lower interest rate and choose the mortgage type you are comfortable with.
• Recasting a Mortgage- Recasting lets you keep your existing loan while adjusting the amortization. You can’t change the interest rates or shorten the loan term with it. However, if you have lower interest rates, then recasting is a preferable option.

Yes, if you want to secure a lower monthly mortgage payment, it is for you. You don’t have to apply for a new loan, and the service fee is quite low. This is great if you are facing financial problems and cannot contribute towards the mortgage. 

However, it is advisable to choose a reliable lender who has experience in mortgage recast. You can rely on reAlpha and get the best lenders in your locality.  

Mortgage recast time varies from one lender to the other, while some don’t offer it at all. Generally, it takes up to 60 days if you have made on-time payments.

No, since you are not taking a new loan, it doesn’t require a credit check. This makes recast mortgages appealing to borrowers.

Only conventional loans are eligible for a recast. If it is an FHA, VA, or USDA loans that are backed by the government then you are not eligible for mortgage recasting.

Find the Perfect Mortgage for Your Dream Home with Be My Neighbor.

Compare options, calculate payments, and get expert guidance—all in            one place.

Get Pre-approved