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Receiving a monetary plunge may inspire the idea of all the fun you can do with additional cash. However, the wise use of money may include additional payments for the mortgage principal. this is, mortgage Recast. When you make an additional payment, your lender will redeem (recalculate) your mortgage based on a new, lower principal balance.
One-time payments do not affect the duration or interest rates of your existing mortgage, but they may help you repay your loan balance faster. Or, if your loan servicer offers a mortgage recast, you can reduce your monthly loan payments.
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Mortgage recasting is the recalculation of a monthly mortgage payment by a loan servicer after making a large payment for the principal of an existing mortgage. Prior to payment, you must specifically request and obtain permission to recast. Otherwise, monthly payments will not be reduced — although large payments will reduce principal.
When recast, Reduce monthly payments Reduces long-term interest payments. The process is easier and cheaper than refinancing, and the loan servicer does not need to look up your income, credit score, or debt-to-income ratio.
However, not all loan servicers offer mortgage recasts. Those who do so will create a new depreciation schedule after applying your hefty payments to your unpaid mortgage balance. New monthly payments will be based on a lower loan balance. Your interest rate and payment date will not change.
Before recasting a mortgage:
- Check with your mortgage servicer to see if it offers a recast. Not all servicers do so, and few people advertise it.
- Ask if your loan type is eligible for recast. Not all loan types are eligible. For example, government loans such as FHA loans and VA loans cannot be recast.
- Decide how much money you will put into your principal. A minimum amount applies and is usually $ 5,000 or more.
- Find out if your servicer charges a mortgage recast fee. Some servicers do not charge for mortgage recasts, while others do.
- Keep paying for your loan. Otherwise, you will incur late payment charges and your credit report may be negatively marked. Also, it may not be subject to recast.
The loan servicer should do the following accordingly:
- Let us know if it offers a mortgage recast.
- Check the loan type for eligibility.
- Please let us know the minimum lump sum payment you will accept.
- Please let us know the mortgage recast fee.
- Please let us know when the recast process is complete.
Mortgage recasting is a relatively simple concept to understand. An example of how it works is shown below.
For example, 15 years ago, you Borrowed $ 200,000 A 30-year mortgage with a fixed interest rate of 4%. Currently, the remaining principal balance is approximately $ 129,000 and the loan term is 15 years. Your monthly payment is about $ 955.
With a one-time payment of $ 10,000, the principal drops to $ 110,000. If you recast that amount over 15 years, your monthly payments will drop to about $ 880.
The total monthly payment difference of about $ 75 for 15 years (180 months) is $ 13,500. After deducting the original $ 10,000 lump sum payment, you can save $ 3,500 on interest over the entire loan period by recasting.
How long does it take to recast a mortgage?
If you are considering a mortgage recast, keep in mind that the process may take several weeks to complete. In the meantime, it’s important to keep paying regularly every month. If you are not familiar with paying your loan, you may be disqualified from recasting your mortgage.
How many times can I recast my mortgage?
Some loan servicers allow you to recast your mortgage as often as you like, while others limit the frequency. You may also have to pay a recast fee each time.
Consider the following differences when deciding whether refinancing or recasting is appropriate:
- Mortgage recast It may be a better choice if you want to keep the same interest rates and loan terms as your existing mortgage, and if you have additional money to invest in your home instead of reducing your monthly payments. It’s also much cheaper than refinancing a mortgage.
- Refinancing a mortgage It may be the right option when you want to replace your existing loan with a new one.It may allow you to do Secure low interest rates Change the loan period.You can also Cash-in refinancing To reduce your loan principal. However, you will have to pay a closing cost equivalent to 2% to 5% of the loan amount.
Compare Credible and Credible Mortgage Refinancing Rates Check if you are eligible to refinance your mortgage just now.
Recast and loan changes
Loan changes are another alternative to mortgage recasting and can be advantageous in certain situations.
- Mortgage recast You can make large payments for the principal of the loan, which reduces your monthly payments. Interest rates and loan terms do not change. If you’re considering a recast, you’re probably in good financial position.
- Loan change Useful if you are late for mortgage payments or are at risk of foreclosure. Your loan servicer will either extend your loan term or lower interest rates to help you stay in your home if you experience serious financial difficulties or you May refinance or defer principal until the end of your loan term. You are eligible for refinancing.
Not all loan servicers recast mortgages, but if you do, what you need to qualify is:
- Traditional loan — You may not be able to recast your FHA, USDA, or VA loan.
- Eligible lump sum payment — Check with your loan servicer to make sure your payment meets that criteria. Recasting often requires a minimum amount of money.
- Existing Mortgages in Good Condition — If you have recently been late for payment, you may not be eligible.
- At least two consecutive timely payments at the current payment rate — Your loan servicer may not allow you to just recast the loan you closed.
If you remake your mortgage, these are some benefits:
- Reduce Monthly Mortgage Payments — Recasting your mortgage will result in less monthly payments and less loan balance.
- Interest Savings — A low loan balance means that you pay less interest on your loan.
- Same loan period — Recasting a mortgage does not extend the term of the loan.And you can still Repay your mortgage early if you want to.
- Minimum charge — The cost of recasting a mortgage is usually much lower than when refinancing, perhaps hundreds of dollars depending on the loan servicer.
- No evaluation or credit check required — Refinancing a mortgage is often easier than refinancing a mortgage because no appraisal or credit check is required. Especially when the value of the house goes down or the credit score goes down.
Of course, mortgage recasts also have their drawbacks.
- Money tied to your home — Using a storm to reduce a mortgage principal means that the money is not available for other needs. If you need money in an emergency, less money is available.
- Unchangeable interest rates — You may save more money by refinancing your mortgage instead of refinancing it.
- Same loan period — You can speed up your loan repayment by making a one-time payment without recasting or by making additional monthly payments.
- Slight reduction in payments — Significant lump sum payments may only slightly reduce your monthly payments.
- processing time – It may take several weeks for the mortgage recast to be completed. In the meantime, you need to continue to make regular payments to keep your mortgage in good condition.
Under the right circumstances, it may make sense to recast a mortgage. If you have additional funds available and your existing mortgage rates are low, it may help to recast your mortgage to reduce your monthly payments and avoid refinancing costs.
Another situation where recasting may make sense is if you buy a new home with a mortgage before you sell the old home. If your old home sells, we recommend that you use the money to repay your new mortgage and recalculate your monthly payments, if your loan servicer allows it.
Still, other options may be more beneficial, such as refinancing your mortgage when interest rates fall.
Credible can’t help with mortgage recasts, Compare pre-eligibility rates for refinancing loans From multiple lenders. That information will help you determine if recasting, refinancing, or maintaining a course with an existing mortgage is the right decision for you.