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Refinance or Recast?

While refinancing is the most common method used to reduce monthly mortgage payments, a loan recast offers less than half the fees and paperwork, while keeping the same rate and amortization schedule. And, for a nominal fee, most lenders (with the exception of FHA and VA) will recast your mortgage loan.

If you’ve received a bonus, inheritance or other type of windfall and would like to reduce your monthly payment by applying a portion to your mortgage, you have two options: refinance or loan recast. If your lender offers recasts, you’ll typically be required to put down a minimum of 5 percent of your current principal balance.

Loan Recast Defined: 

A loan recast is an adjustment to your monthly payments based on a reduced principal loan amount and the balance of your amortization. Your rate remains the same.

Loan Recast Broken Down:

Current Loan

Original Loan: $285,000

Original Term: 30 Year Fixed

Original Rate: 4%

Original Payment: $1360

After Ten Years of Payments

Current Loan: $224,535

Current Term: 30-year fixed

Current Rate: 4%

 Current Payment: $1360 

Now let’s take a look at what your payment look like after putting 10 percent down:

Loan Recast

Current Loan Amount: $224,535
10% Payment: $22,453
New Loan: $202,082
New Loan Term: 20-year fixed
Rate: 4%
New Monthly Payment: $1,224

Benefits of Loan Recast

  • When you recast your loan you are not resetting the 30-year loan clock, which means the majority of your payment will not be applied to interest. In effect, a loan recast avoids starting over.
  • A loan recast does not require an appraisal.
  • There is no need to pull credit.
  • A loan recast typically only costs between $250-$500.

Disadvantages of Loan Recast

  • A loan recast does not impact your rate, even if rates are lower than your current rate.
  • While your monthly payments are reduced, your current loan term remains the same. If you want to pay down your loan faster, make 15-year monthly payments.

There are many financing options available to you be sure and speak with your financial adviser and mortgage professionalwhen considering a mortgage loan recast.

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