Should You Recast or Refinance Your Mortgage?

Hello Hampton Roads,

As a home owner saving money on your mortgage is an attractive proposition and you've probably received offers to refinance when rates are low but, you've probably never gotten a offer recast your mortgage.  Most lenders don't advertise that you can do this and some loans may not be eligible,  but depending on your situation, it may work better for you than a refinance.

To Refinance or Recast--What's the Difference?

Both options have the net result of improving your cash flow by lowering your monthly payment.

When you refinance a mortgage, you are getting a completely new loan with new terms.  It's a new loan that pays off the current mortgage. The benefit of doing this is that by getting a lower interest rate, your monthly payment will be lower.   Refinancing a mortage comes with closing costs fees and a new credit check and other verifications.

When you recast a mortgage, you pay a lump sum (at least $5000.00 but ask your lender what is required to do this) which lowers the balance of your loan and thereby results in a lower monthly payment.  Your interest rate does not change the way it would if you were to refinance.

It is typically easier to recast a mortgage since you don't have to qualify for a new loan, or have your credit checked, and the costs involved are far less than what you would pay with a refinance.   This option works if you have the funds to make the lump sum payment. To see if this makes sense for you, check out the this free mortgage re-cast calculator.

However, a 3rd option to consider if you are not concerned about cash flow, is to take any additional money and pre-pay the mortgage by applying the extra funds towards the principal. When you do this, you pay down your loan faster and pay less interest over all. It does not change the interest rate of your loan and your monthly payment will stay the same.

Thanks for Reading,

View Liz Schuyler- CDPE, SFR, e-PRO's profile on LinkedIn _

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