"Recasting" Strategy Can Lower Your Mortgage Payments

If you have already refinanced your current loan at today’s mortgage rates and you are still looking for a way to make your monthly payments even lower, there may be one strategy left that you haven’t tried.

“Recasting” is another term for reamortizing and it gives the mortgage borrower the opportunity to lower their monthly payments if they already have a fixed rate loan. The process involves the borrower paying a small fee rather than applying or a new mortgage loan so they do not have to worry about paying appraisal fees and other costs associated with getting a refinance. In addition, recasting can also help borrowers save on the interest of their loan over the long term because it helps pay down the principal amount of the loan.

Because recasting does not create a large stream of revenue for banks and lenders, you won’t see any advertisements for this option. Refinancing is a better moneymaker for lenders so the only way you will find out more about recasting is if you ask your lender about it. However, not all loans qualify for recasting so be prepared for that as well.

Recasting is so unpopular for banks and the numbers can attest to that. For instance, Chase only has about 200 recasts per month out of about 10 million mortgage loans. For Bank of America’s 14 million home loans, only about 200 to 300 of those get recasted.

If you are considering this option, here is a basic rundown of how it works. First, ask your loan officer if you can put a large amount of money towards the principal balance on your mortgage. If the lender agrees, you can recast your loan so you pay a smaller monthly payment for the remainder of the loan. It doesn’t shorten your loan terms, but it does make it easier to make the monthly payments.

Recasting is typically a good choice for homeowners who have come into a large sum of money either through a bonus at work, a modest inheritance or some other occurrence. Normally, refinancing would be a good option but not every homeowner will qualify for a refinance or their credit score would cause them to get a higher interest rate than they are paying now. If this is the case, you can put that lump sum toward the principal balance to reduce that. This also reduces the overall interest that you will pay so your monthly payments can be lower.

If this sounds like a viable option for you, check with your loan servicer to see if you qualify. As always, weigh all of your options and crunch the numbers before making your final decision.