Recasting may be the simplest way to reduce your monthly mortgage payment. What’s the catch? You must have a large sum of money to pay off your mortgage. However, a mortgage recast could lower your monthly payments and help you pay off your home faster if you have the funds. This article discusses mortgage recast, its pros, and cons, and Wells Fargo and Bank of America recast and how to calculate using its calculator.
We are currently in a unique situation where interest rates are low, and the real estate market is thriving. In a low-interest-rate environment, refinancing appears to be a good option. However, if you do not want or cannot qualify for a refinance, a mortgage recast may be a viable option.
What Is a Mortgage Recast?
A mortgage recast, also known as a loan recast, occurs when a borrower makes a large, lump-sum payment toward the principal balance of their mortgage, and the lender re-amortizes the loan. This means your loan balance has been reduced to reflect the new balance.
Recasting lowers your monthly payments and the amount of interest you’ll pay over the loan’s life. It does not affect your interest rate or loan terms, however.
How a Mortgage Recast Works
“A recast is when a customer wants to apply an additional sum of money to significantly reduce the unpaid principal balance of their mortgage and lower the monthly payment,” explains Kris Yamamoto, senior vice president of corporate communications, Bank of America. “The loan term and interest rate remain unchanged for the customer.”
Re-amortizing the loan based on the newly reduced principal amount, on the other hand, would result in a lower monthly payment. We would confirm that the loan investor allows recasting and ensures the customer is current on their costs if a request to recast a loan is made.
Only fixed-rate loans can typically be recast, but adjustable-rate loans may be considered individually.
According to Wells Fargo spokesman Tom Goyda, mortgage recast is uncommon partly because not all loans are eligible. Conforming, conventional “According to Goyda, Fannie Mae and Freddie Mac loans are generally eligible, but loan recasts on FHA and VA loans are not permitted.” Recasting a jumbo loan is dependent on the specific loan.
According to Goyda, borrowers are more likely to refinance to a lower mortgage rate when interest rates are low. Others choose a free biweekly mortgage payment plan to pay off their loan faster by making extra principal payments each year.
Bank of America and Wells Fargo Home Mortgage customers are charged $250 for a loan recast. To qualify for a mortgage recast at Wells Fargo, customers must make a lump sum payment of $5,000 or 10% of the remaining mortgage balance, whichever is greater.
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Why Should You Request a Mortgage Recast?
One of the most common reasons for a loan recast, especially when the real estate market is slow, is that some people buy new homes before selling old ones. They end up temporarily paying two mortgages. When their previous home sells, the proceeds can be used to pay down the balance and refinance their loan.
“While a loan recast cannot be done during the first 90 days of a loan,” Goyda says, borrowers can use the proceeds from the sale of their previous home to reduce the principal on the new loan and thus reduce their payments through re-amortization.
According to Yamamoto, mortgage recast is common at Bank of America. It frequently occurs when a customer inherits money or receives a large bonus and wishes to pay the mortgage balance. Borrowers should consider their goals and options before requesting a loan recast.
Mortgage Recasting vs. Refinancing
Although they may sound similar, mortgage recasting and mortgage refinancing are not the same thing. “A mortgage recast only affects the current loan,” Tassone explains. That means you’ll continue to work with the same lender and have the same interest rate and loan terms.
When you refinance a mortgage, you replace your existing loan with a new one. “In most cases, refinancing “resets the clock” and returns it to a 30-year term,” Tassone says.
Because you’re keeping the same loan, a mortgage recast is less complicated than refinancing. As a result, recasts are frequently less expensive. “There isn’t an initial outlay of money with a recast, except for a couple of hundred dollars,” says Joseph J. Zoppi, managing partner at Templar Real.
Zoppi claims that one of his clients recently refinanced and paid nearly $5,000 in application fees and mortgage points. Securing a mortgage requires a significant amount of research, time, and money. So it’s easy to see the appeal when considering the convenience of keeping the same mortgage and simply readjusting the monthly payments with a recast.
Mortgage Recast Pros and Cons
While the recast mortgage process has assisted many homeowners in lowering their monthly payments, borrowers must weigh the pros and cons for themselves. Everyone’s financial situation is unique, and you won’t know if the process is proper for you until you examine each benefit and disadvantage.
Pros of Mortgage Recast
There are numerous pros to recast a mortgage, all of which may appeal to homeowners. Here are a few of the advantages that may make a mortgage recast worthwhile:
#1. Reduced Mortgage Payments:
You can reduce your minimum payment in the future by making extra payments and recasting your mortgage. This is fantastic for homeowners who want to invest or save their extra money. The original mortgage timeframe will be maintained, so you will not need to extend your loan.
#2. Simplicity:
When researching how to recast a mortgage, you may notice that it is frequently much more straightforward than refinancing a mortgage. Homeowners are commonly required to meet eligibility requirements and meet with a lender to do so. The ease of use is ideal for homeowners who want to change the terms of their mortgage without re-qualifying for a loan.
#3. Maintain your interest rate:
Mortgage recasting involves using the existing loan balance and the remaining time frame on the mortgage and thus does not affect the interest rate. A recast represents an opportunity for homeowners with a favorable interest rate to benefit; from lower mortgage payments while maintaining the same interest rate.
Cons of Mortgage Recast
While there are numerous advantages to recast a mortgage, there are a few cons that homeowners should be aware of. Before deciding on a recast, exercise caution and consider the following factors:
#1. Increased mortgage payments:
It may raise your monthly payments. This can happen when homeowners make low monthly mortgage payments and must recast the mortgage by their lenders. These situations, while uncommon, can and do occur.
#2. Fees:
There are costs associated with recasting a mortgage. These will vary depending on your lender, but homeowners should budget between $0 and $500. When considering recasting a mortgage, it is essential to weigh the benefits of a lower payment against the fee.
#3. Minimum payments:
Many lenders will require a minimum lump-sum payment to qualify for a recast. You may not be affected if you make extra mortgage payments over time. If a lump sum is required, homeowners should consider how it will affect their finances.
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Mortgage Recast Calculator
If you plan to recast your mortgage, use the Mortgage Recast Calculator to calculate your new monthly payment. The amortization schedule calculator at Bankrate is based on the remaining balance on your existing mortgage, current monthly fee, and interest rate. The amortization schedule generated by their mortgage recasting calculator is printable and exportable to an Excel spreadsheet.
How to Calculate Your Mortgage Recast
If a mortgage recast is the best option for your finances, make sure the math works. With the help of Bankrate’s amortization schedule calculator, you can estimate your new monthly payment after the mortgage recast.
If you have any questions about your potential savings, contact your mortgage lender. A loan officer can assist you in running the numbers and determining the best strategy for your specific situation.
Should I Refinance My Mortgage?
If you’ve paid off your mortgage rapidly and would prefer to have reduced monthly payments, a mortgage recast is an excellent solution. Lower payments can help you qualify for other loans and save up monthly cash because they lower your debt-to-income ratio.
What Does a Recast Serve to Achieve?
After your home purchase has been completed, you can refinance your mortgage by making a lump sum payment against the principle. Without incurring closing expenses or extending the loan’s term, this can reduce your monthly payments.
What Distinguishes a Refinance from a Recast?
After making a sizable payment, recasting lowers your loan balance and your monthly payment. Applying for a new loan to replace your previous mortgage with better terms—often lower interest—is referred to as refinancing.
How Is a Recast Mortgage Determined?
Recasting a mortgage entails recalculating monthly payments by dividing the loan sum by the number of months still left in the mortgage term. Homeowners who take this action ahead of time might be able to lower their monthly payments.
Conclusion
A mortgage recast can be an excellent option for homeowners looking to reduce their monthly mortgage payments. Having a little extra money each month may be beneficial, especially as homeowners approach retirement. Remember that you are not required to change the terms of your original mortgage if you accelerate your mortgage payments or contribute a lump sum to your loan.
Homeowners should research to determine what will work best for their specific situation. A loan recast may benefit some, but it is not a one-size-fits-all solution. Do you intend to proceed with a mortgage recast? Please share your thoughts in the comments section below.
Mortgage Recast FAQs
Is loan recasting a good idea?
Recasting your mortgage is an excellent way to invest in your home equity while keeping more of your monthly income if you have money saved up or receive a cash gift or inheritance. You desire lower monthly payments. Recasting your mortgage will lower your loan principal and monthly payment amount.
Do most lenders allow recasting?
As previously stated, government programs such as FHA and VA loans are generally not eligible for recasting. You are required to make a minimum payment. Lenders will usually consider a recast only if you make a minimum lump-sum payment, either a fixed amount or a percentage of your principal. You’ll also have to pay a fee.
Is it better to recast or pay down principal?
Is it a good idea to refinance your mortgage? The most important thing to remember about a recast mortgage is that it will not lower your mortgage rate or shorten the remaining loan term. If you want to pay off your mortgage faster, you can continue to make larger payments to reduce the principal after the recast.
What banks will recast mortgages?
Mortgage recasts are available on some, but not all, loans from Wells Fargo, Bank of America, JPMorgan Chase, and Quicken Loans. For a variety of reasons, recasts are not widely known. Recent record-low interest rates have made refinancing the preferred option for borrowers looking to reduce monthly payments.
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