Mortgage Recast: Lower Your Payment Without Refinancing

If you receive a bonus, inheritance or proceeds from selling another property, you may wonder whether to put that money toward your mortgage. One option many homeowners have never heard of is a mortgage recast. A recast lowers your monthly payment by re-amortizing your loan after a large principal payment, while keeping your interest rate and loan term the same. It can be a simple, low-cost alternative to refinancing in the right situation.

How a Mortgage Recast Works

With a recast, sometimes called re-amortization, you make a lump-sum payment toward your loan's principal. The servicer then recalculates your monthly payment based on the lower balance over the remaining term. Your rate does not change, your maturity date does not change, and you do not take out a new loan.

Because the payment is spread over the same remaining months but applied to a smaller balance, your required monthly principal and interest payment drops. Escrow amounts for taxes and insurance are not affected by the recast itself.

A Simple Example

Suppose you have a balance of $300,000 at a fixed 6 percent rate with 25 years remaining. Your principal and interest payment is roughly $1,933. If you pay $50,000 toward principal and recast, the new balance of $250,000 over the same 25 years at 6 percent produces a payment of about $1,611, a reduction of roughly $322 a month. You would also pay less interest over the life of the loan because the balance is smaller. These numbers are rounded and for illustration; your servicer will calculate the exact figure.

Requirements and Costs

Recast policies are set by each lender or servicer, so the details vary. Common features include:

• A minimum lump-sum payment, often a set dollar amount such as $5,000 or $10,000, or a percentage of the balance.
• A one-time administrative fee, frequently a few hundred dollars.
• A requirement that your loan is current, sometimes with a minimum number of payments made since closing.
• A written request, with the payment and fee typically sent together.

Call your servicer and ask for its recast policy in writing before you send any money, because a payment made without a recast request may simply be applied as an extra principal payment without lowering your required monthly amount.

Which Loans Can Be Recast

Many conventional loans held or serviced under Fannie Mae and Freddie Mac guidelines can be recast at the servicer's discretion. Government-backed loans, including FHA, VA and USDA mortgages, generally are not eligible for recasting. Jumbo loans depend on the lender. If you are not sure which type of loan you have, check your closing documents or ask your servicer. Our guide to conventional loan requirements explains how conventional loans differ from government-backed options.

Recast vs Refinance

When Recasting Makes More Sense

• Your current interest rate is equal to or lower than today's rates, so refinancing would not lower your rate.
• You want a lower payment but do not want to pay full refinancing closing costs.
• You do not want to go through a new application, credit check, appraisal and underwriting.

When Refinancing May Be Better

• Current rates are meaningfully lower than your rate.
• You want to change the loan term or switch from an adjustable to a fixed rate.
• You need to remove a co-borrower from the loan.
• You have a government-backed loan that cannot be recast.

Refinancing replaces your loan with a new one and requires full underwriting. The mortgage underwriting process guide explains what that involves.

Recast vs Extra Principal Payments

Making extra principal payments without recasting reduces your balance and total interest, and it shortens the time it takes to pay off the loan. Your required monthly payment, however, stays the same. A recast lowers the required payment but keeps your original payoff date.

Which approach is better depends on your goals. If you want the lowest total interest and earliest payoff, extra payments without a recast work well, and you keep flexibility because you are not locked into a lower required payment. If you want breathing room in your monthly budget, a recast provides a permanently lower payment.

Things to Consider Before Recasting

Liquidity

Money paid into your mortgage is tied up in home equity. You cannot easily get it back without selling, refinancing or borrowing against the home. Before recasting, make sure you have an emergency fund. Keeping several months of expenses in a high-yield savings or money market account is a sensible first step.

Other Debts

If you carry high-interest credit card or personal loan debt, paying that down first usually saves more than reducing a lower-rate mortgage.

Retirement Savings

Make sure you are capturing any employer match and contributing enough to retirement accounts. Paying off a low-rate mortgage early can cost you long-term growth if it means underfunding retirement.

Tax Considerations

Reducing your balance also reduces the mortgage interest you pay. If you itemize deductions, your mortgage interest deduction will shrink. For many households who take the standard deduction, this has little effect.

How to Request a Recast

1. Call your servicer and ask whether your loan is eligible and what the minimum payment and fee are.
2. Request the policy and any required form in writing.
3. Send the lump-sum payment and fee according to the instructions, clearly labeled as a recast request.
4. Continue making your regular payments until the servicer confirms the new payment amount.
5. Review the confirmation letter and new payment schedule for accuracy.

The Bottom Line

A mortgage recast lets you lower your monthly payment with a lump-sum principal payment, without changing your rate or taking out a new loan. It works best for conventional loans when your existing rate is already competitive. Compare recasting with refinancing and extra payments, keep an adequate emergency fund, and get your servicer's terms in writing before sending money.