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Your mortgage payment is probably the largest expense in your monthly budget. You've probably heard a lot about refinancing and how it can help by lowering your interest rate. But there's another way to decrease your mortgage payment without closing costs and rate shopping — mortgage recasting.
Mortgage recasting is making a large lump-sum payment on your mortgage for your lender to re-amortize it. CNBC Select outlines how this approach works and what to consider when deciding whether it's right for you.
How does mortgage recasting work?
When you recast your mortgage loan, you make a large payment toward the principal balance. Your lender then re-amortizes the loan to reflect the new lower balance. This, in turn, decreases your monthly payments and how much you'll pay in interest over the life of the loan. The rest of your loan terms remain the same, including the term length and interest rate.
The process comes with an administrative fee that varies by lender but typically is a few hundred dollars.
How mortgage recasting can lower your mortgage payment
You took out a $400,000 mortgage loan at a 5% interest rate with a monthly payment of $2,147. Ten years later, your outstanding balance was $325,368. You decided to recast a mortgage for a $250 fee. You put $60,000 toward the principal balance to re-amortize the loan, reducing the balance to $265,368.
After recasting, your monthly payment decreased to $1,751 — $396 less than what you used to pay. In this scenario, you'll pay $34,000 less in total interest throughout the rest of the loan's life.
How to recast a mortgage
To recast a mortgage, you first need to make sure your mortgage lender offers it. Some major lenders, including Rocket Mortgage and Chase, advertise this option, while others don't — meaning you'll have to reach out to your provider to see if it's available.
Rocket Mortgage
Annual Percentage Rate (APR)
Apply online for personalized rates
Types of loans
Conventional loans, FHA loans, VA loans and Jumbo loans
Terms
8 – 29 years, including 15-year and 30-year terms
Credit needed
Typically requires a 620 credit score but will consider applicants with a 580 credit score as long as other eligibility criteria are met
Minimum down payment
3.5% if moving forward with an FHA loan
Already have a mortgage through Rocket Mortgage or looking to start one? Check out the Rocket Visa Signature Card to learn how you can earn rewards
Chase Bank
Annual Percentage Rate (APR)
Apply online for personalized rates; fixed-rate and adjustable-rate mortgages included
Types of loans
Conventional loans, FHA loans, VA loans, DreaMaker℠ loans and Jumbo loans
Terms
10 – 30 years
Credit needed
620
Minimum down payment
3% if moving forward with a DreaMaker℠ loan
Terms apply.
Offers first-time homebuyer assistance?
Yes — click here for details
Further, you'll typically need to meet the following requirements:
- Have a conventional mortgage loan. Government-backed loans, such as VA, USDA and FHA loans, aren't eligible for recasting.
- Have enough equity in your home. Your lender is likely to require that you have sufficient equity. The exact amount varies by lender.
- Have a large enough lump sum. While many lenders may allow you to contribute as little as $5,000 or $10,000, others may require that you make a larger lump sum payment of $50,000. Alternatively, the minimum lump sum can be a certain percentage of the loan balance.
- Have a clean payment history. Generally, if you've been making late or insufficient payments on your mortgage your lender won't allow you to recast your loan.
Deciding whether mortgage recasting is worth it
Mortgage recasting may be appealing since it allows you to lower your mortgage payment, as well as the total overall interest paid, without having to go through refinancing. Refinancing requires taking on a new mortgage loan with the goal to get a lower interest rate, which means you'll also have to pay closing costs (usually, between 2% and 6% of the loan amount). It's also a more complicated process — you'll likely have to go through a credit check, home appraisal and income verification.
You won't need to do any of that to recast your mortgage as you'll keep the same loan. This also means you'll have the same interest rate, which can be an advantage if your current rate is low. For example, if you secured your mortgage in 2021 when the average mortgage rate dipped below 3%, you probably don't want to part with your low interest rate now that the rates are much higher.
On the other hand, if you took on a mortgage in a high-interest environment, refinancing can save you more money on interest in the long run, even considering closing costs. Recasting also won't help you shorten your loan, so if that's your goal, refinancing might be a better choice. If you're choosing between the two options, it may also be helpful to pre-qualify for refinancing with a few lenders to estimate how much it can save you compared to recasting. CNBC Select recommends Ally Bank if you want to save on lender fees and Better.com for a straightforward refinance service.
Ally Home
Annual Percentage Rate (APR)
Apply online for personalized rates; fixed-rate and adjustable-rate mortgages included
Types of loans
Fixed-rate, adjustable-rate and jumbo loans available
Fixed-rate Terms
15 – 30 years
Adjustable-rate Terms
5/6 ARM, 7/6 ARM, 10/6 ARM
Credit needed
Not disclosed
Terms apply.
Better.com Mortgage Refinance
Annual Percentage Rate (APR)
Apply online for personalized rates
Types of loans
Conventional loan, FHA loan and jumbo loan
Fixed-rate Terms
15–30 years
Adjustable-rate Terms
Not disclosed
Credit needed
Not disclosed
Terms apply.
Additionally, simple as it may sound, recasting still requires putting a large chunk of cash toward your home equity. It's wise to think about other ways you could spend it first. Do you already have a fully-funded emergency fund? Are you free of high-interest debt? Could you get better returns if you invested the money in the stock market instead? These are some of the questions you may want to ask yourself before committing to recasting your mortgage.
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Bottom line
Mortgage recasting is worth looking into for lowering your mortgage payments if your current mortgage interest rate is low and you have substantial cash to put toward your home equity. But first, it's important to consider if your money might serve you better if you use it differently. When in doubt, connecting with a financial advisor to determine the best approach to your situation can be helpful.
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Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.
