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Published: Dec 21, 2023 9 min read

A mortgage recast is a tool to lower your monthly mortgage payment after you make a lump-sum payment on your principal.

This can be a good option for homeowners who experience a major financial windfall and have extra money they can apply to their mortgage.

Directing a sum of cash toward paying down a mortgage can be more complicated than you’d think. You want to make sure that the extra funds you’re paying are actually reducing your principal balance versus being treated as a prepayment. (In the latter scenario, you won’t save money in interest).

Recasting your mortgage doesn't reduce how many payments you have left, and you’re not changing your interest rate. Basically, you’re using the lump-sum payment to get a lower monthly payment while keeping all else the same. All in all, it can be a savvy financial move to reduce your monthly expenses and lower the interest paid on your home loan.

Table of Contents

How does a mortgage recast work?
When should you recast a mortgage?
Mortgage recast pros and cons
4 steps to recast a mortgage
Mortgage recast vs. mortgage refinance
What is a mortgage recast FAQs

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How does a mortgage recast work?

Recasting your mortgage requires knocking down the principal with a lump-sum payment. After that, your loan will be re-amortized, or recalculated, based on your lower balance.

The large payment shrinks your remaining loan amount reducing how much you’ll pay in interest, and you also get lower monthly payments. However, it doesn’t reduce the amount of time until you pay off your loan because your loan term doesn’t change. Likewise, your interest rate stays the same.

Mortgage recasts aren’t terribly expensive, but they do carry a fee that may determine whether the move makes sense for you. Say the fee is $250; that’s still enough to preclude you from recasting with a small sum of money for the lump-sum payment, like $1,000.

Generally, recasting only makes sense when you have thousands of dollars you can use at once, like $10,000 or more. At these levels, you’re probably going to save more than a few hundred dollars in interest with the recast.

Here’s an example of a mortgage recast from an online mortgage recast calculator: If you have a loan balance of $100,000 on a mortgage and your monthly payment is $1,074, recasting with a $10,000 payment would bring your new monthly payment to $961 and you’d save $2,292 over the life of the loan. That assumes you have 10 years left on your loan and it’s a 5% fixed-rate mortgage.

When should you recast a mortgage?

Mortgage borrowers sometimes find themselves with significant amounts of money that they didn’t have when they initiated their mortgage loans. Situations when you could consider a mortgage recast include after receiving a major bonus or commission, a life insurance payout or an inheritance. You may also be in a position to recast after selling a major item like a car or having a great run in the stock market.

Mortgage recasting isn’t the only option for lowering your monthly payment, however. One alternative possibility is refinancing your mortgage. Another alternative to recasting is making extra principal payments through your lender to shorten your payment timeline. When mortgage rates are as high as they are now, that can be a way to lower what you pay in interest.

It’s important to note, however, that your options may be limited based on the rules in your loan agreement. Some lenders will only treat extra payments as prepayment, which doesn’t actually lower your principal or reduce your interest. In this case, recasting could be your best bet, but you should always contact your mortgage lender to see what’s possible.

Mortgage recast pros and cons

There are several good reasons to recast a mortgage, including lowering your monthly payment and paying less in interest. On the other hand, recasting isn’t the only way to direct extra money toward paying down a mortgage loan.

The pros of a mortgage recast

A mortgage recast lowers your monthly payments and reduces what you pay in interest, better positioning you for financial success in the future. It’s also a simpler task than refinancing (more on that below), as it doesn’t require a credit check or a home appraisal. If you’re set on using your money for paying off your mortgage, this is often a good option.

The cons of a mortgage recast

Mortgage recasting has critics who argue that you’re better off investing your money and making normal mortgage payments on-time. Especially if your mortgage rate is low, they say you can usually get high enough returns with a diversified investment strategy to make that approach more rewarding.

Also, the fees for recasting a mortgage can negate their upside, and as previously mentioned, a recast does not shave any time off your loan term.

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4 steps to recast a mortgage

Mortgage recasting doesn’t have to be complicated. Here’s a step-by-step walkthrough to the process:

1. Determine whether you meet the basic eligibility criteria

Not everyone can recast their mortgage. To be eligible for a loan recast, there are minimum home equity requirements and there may be a minimum lump-sum payment amount (for example, $5,000).

Only some types of mortgages can be recast. In most cases, FHA loans, USDA loans and VA loans cannot be recast. Other eligibility criteria requirements may apply — be sure to check your lender’s rules.

2. Inquire about a mortgage recast with your mortgage lender

The process of recasting a mortgage can be initiated over the phone or at a bank branch if your mortgage is through a direct lender like Wells Fargo.

Explain that you are interested in making a large lump-sum payment toward your principal and inquire about the processes and protocols for mortgage recasting.

You should ask your lender for the cost to recast and if there’s a minimum for the lump-sum payment. To judge if the fees are worth paying, you can use a mortgage recast calculator to compare how much you could save on interest over the remaining years of your mortgage.

Lastly, find out much of a lump-sum you’ll need to qualify for a recast. The minimum is often $5,000 or $10,000 but could be as high as 20% of your mortgage balance.

4. Submit a mortgage recast application

When you’re ready to pay down your mortgage principal, ask your lender for the recast application and complete the paperwork. A credit check is not required for this process, meaning your credit score won’t be negatively affected.

5. Make the lump-sum payment along with the recast fee

Follow your lender’s instructions for sending payment. Once you’ve completed the process, you’ll be able to start making smaller monthly mortgage payments soon.

Mortgage recast vs. mortgage refinance

Recasting and refinancing can both help you lower your monthly payments. If your goal is to direct a financial windfall toward your loan, they’re likely two of your top options.

Refinancing involves taking out a new mortgage with a different lender to pay off your current mortgage. Homeowners refinance to secure a lower interest rate or a different term with their new loan. But you’ll have to meet the new lender’s credit requirements and usually need to have your home appraised before refinancing.

Recasting is more about reducing the monthly payments of an existing loan by making a large payment. You keep your existing lender and most details of your loan stay the same when you recast — aside from the principal and your monthly payment. And compared to refinance closing costs, the fees for mortgaging recasting are usually much lower.

If recasting doesn’t sound intriguing, a mortgage refinance can achieve similar end goals. You could refinance to a shorter loan term and put the money you would have used for a lump-sum payment in a savings or investment account. You can then draw from the fund to make your monthly payments. However, refinancing will likely remain unappealing to many homeowners as long as rates are this high.

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What is a mortgage recast FAQs

What does it mean to recast a mortgage?

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A mortgage recast involves making a lump-sum payment on your principal to get lower monthly payments through the re-amortization of your loan.

When should I recast a mortgage?

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Recasting a mortgage is an option when you have a large amount of money that you’d like to use toward your mortgage. It could make sense if your priority is a lower monthly payment. A mortgage recast will also save you money in interest, especially if the interest rate on your mortgage is high. But if you took out your mortgage when interest rates were high, and they’ve since fallen, a mortgage refinance might be a better option for you.

How much does a mortgage recast cost?

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The fee for a mortgage recast is usually only a few hundred dollars. Some lenders will even process no-fee recasts for mortgage borrowers who meet certain requirements.

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