What is a Mortgage Recast? Lower Your Monthly Payments

‍61.5% of American homeowners have a mortgage on their homes. The outstanding mortgage debt since 2019 has grown to nearly $3 trillion. If you want to better manage your mortgage obligations, you may consider exploring options to support your financial goals.

A recast mortgage or recast loan allows you to pay a lump sum towards the mortgage, reducing monthly payments and interest. However, if you are considering recasting a loan, you’ll require knowledge of the legal landscape to secure the loan.

A recast mortgage is not automatic or offered by all access to a network of 100+ lenders. At reAlpha, we can help you access a network of 100+ lenders by using our AI-enhanced operations designed to support your homebuying process.

If you're considering a home loan, location plays a crucial role in property value and long-term affordability. Check out the safest places to live in Florida before making a decision.

A mortgage recast allows lump sum payment on the loan to reduce its outstanding balance. Your lender will reamortize the mortgage loan with a lower monthly payment with the same loan term or interest rates.

Not all mortgages can be recast in a standard sense. Typically, you can’t recast a USDA, VA, or FHA loan. However, recasting availability depends on your loan provider’s policies if you are struggling to pay off the loan. 

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Once you have a certain amount in hand, you will be ready to go ahead. The process of recasting a mortgage takes between 45 to 60 days to complete. So, here is the process:

1. Contact Your Lender- The first step when you plan to recast a mortgage is to contact a mortgage brokerage. Here, you need to get important details about your mortgage recast requirements and criteria.
2. Review Eligibility and Guidelines- Check the eligibility guidelines to ensure you fit the bill. For example, any government-backed loans cannot be recast.
3. Payment- Calculate the payment you want to pay towards the mortgage. The amount can vary from one lender to the other, but it has to be a minimum amount required by your loan provider.
4. Calculate Principal- Subtract the lump sum with the outstanding mortgage and find your new balance.
5. Review Your Updated Loan Terms- Once you have made the payment and filled in the paperwork, you’ll receive a notification of your new monthly payment. This can take a few months. So, continue making your regular payments till it is approved.

Recasting can be an effective way to lower mortgage costs, especially when you're also considering new construction. Learn more about how much it costs to build a house.

Not every borrower will qualify for a mortgage recast. If you qualify for it, then you are required to meet some basic requirements:

• No Government-Backed Loan- As mentioned above, you cannot recast home loan if you have any government-backed loans. Generally, recasting applies to conventional loans.
• Meet Minimum Principal Reduction Standards- A lender requires you to pay a certain amount in principal to recast a loan.
• Satisfy Equity Requirements- You may need to have a certain equity in your loan if you want a recast to qualify.
• Good Payment History- Lenders will only recast a loan if you have a good history of making payments on time.

A lender should offer you the information that you need to calculate the mortgage. However, you can calculate it yourself to better understand it. You can use a mortgage recast calculator, but you can also do it manually.

For example, you have a 30-year mortgage of $300,000 at a 6.5% interest rate. The monthly payment will be $1,887.76.

Suppose you make a lump sum payment of $50,000; your new balance will be $250,000. This will lower your monthly payment to $1,573.05. So, through a loan recast, you have a estimated monthly savings of $314.71.

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