Mortgage Recast Calculator
What is a mortgage recast?
Mortgage recasting is a strategy for prepaying your mortgage. It reduces your monthly payments while maintaining the loan's original interest rate and term.
To recast a mortgage, you need to make a significant lump-sum payment and pay a one-time fee. The lender then recalculates the loan, adjusting the monthly payments based on the reduced principal balance, but keeping the initial interest rate and loan duration unchanged.
What's the catch?
Recasting is an option for most conventional mortgages, but it's not available for government-backed mortgages, such as FHA, VA, and USDA loans. Also, lenders typically require a waiting period — often around 12 months — after you've taken out the loan before you can request a recast. Lastly, recasting isn't as well-known as refinancing, so not every lender will provide this service.
Mortgage recasting vs. refinancing
Mortgage recasting and refinancing are two distinct financial strategies that work in different ways:
- Recasting keeps your existing loan intact, adjusting only the amortization schedule. You maintain your current interest rate and loan term, but your monthly payments decrease due to a reduced principal balance.
- Refinancing replaces your current mortgage with a new loan. This process allows for potentially significant changes, including securing a lower interest rate, switching between fixed and adjustable rates, or tapping into your home equity.
| Recasting | Refinancing | |
|---|---|---|
| Fees | A few hundred dollars processing fee | Closing costs up to 2% - 6% of the loan amount |
| New Loan | No new loan initiated | New loan created |
| Documentation Required | Typically just proof of funds for lump sum payment | Income proof, credit score, employment history, pay stubs, debt & assets, tax documents |
| Home Appraisal | Not required | Required |
| Interest Rate | Remains unchanged | Can change (often aiming for a lower rate) |
| Loan Term | Remains unchanged | Can be modified (shorter or longer term available) |
| Loan Type Flexibility | Limited mostly to conventional loans | Available for most loan types |
| Cash-Out Option | Not available | Available |
| Principal Balance | Immediately reduced by lump sum payment | Can be reduced, especially with cash-in refinance |
| Monthly Payment | Decreases due to lower principal balance | Can increase or decrease based on new rate and term |
| Impact on Total Interest | Reduces total interest paid over life of loan | Can reduce total interest if rate lowered or term shortened |
Should you recast or refinance your mortgage?
Choose recasting if you have a lump sum and like your current rate but want lower payments. If you seek better rates, different terms, or need to tap into equity, opt for refinancing.
Mortgage recasting vs. making extra principal payments
Recasting and making extra principal payments both reduce your loan balance, but they affect your mortgage differently.
Mortgage recasting lowers your monthly payments by re-amortizing the loan after a large lump sum payment, while extra principal payments shorten your loan term without changing monthly payments.
Choose recasting for immediate monthly savings or extra payments to pay off your mortgage faster.
How to qualify for a mortgage recast
To be eligible for a mortgage recast, you generally must meet these criteria:
- Hold a conventional loan (FHA, VA, and USDA loans are typically ineligible)
- Have a significant lump sum available (often $10,000 or more)
- Maintain a good payment history
- Obtain lender approval (note that not all lenders offer recasting)
- Be able to pay the recast fee (typically between $250 and $500)
Your credit score usually isn't a determining factor. Check with your specific lender for their requirements, as they vary between institutions.
When is the best time to recast your mortgage?
The best time to recast your mortgage is when you've come into a substantial sum of money and want to lower your monthly payments without refinancing. This could be after receiving an inheritance, a large bonus, or selling another property.
It's ideal if current interest rates are higher than your existing rate, making refinancing less attractive.
How often can you recast your mortgage?
Many lenders do not have restrictions on how often you can recast your mortgage as long as you meet the principal reduction requirements and have a history of on-time payments.
However, some lenders only allow mortgage recasting once per loan term, so it's best to check with your institution directly.
What does it cost to recast your mortgage?
Most lenders charge a flat fee, usually ranging from $250 to $500. Some may charge up to $1,000, but this is less common.
How to calculate your mortgage recast savings
Determine Your Current Mortgage Details:
- Current Principal Balance
- Interest Rate
- Remaining Loan Term
- Make a Lump-Sum Payment
Calculate Your New Principal Balance:
Subtract your lump-sum payment from your current principal balance:
New Principal Balance = Current Principal Balance − Lump Sum Payment
Recalculate Your Monthly Payment:
Using the new principal balance, the same interest rate, and the remaining loan term, calculate your new monthly payment.
You can use this formula: M = P × r(1+r)n / ((1+r)n − 1)
Where:
- M = monthly payment
- P = new principal balance
- r = monthly interest rate (annual rate / 12)
- n = total number of payments remaining (remaining years × 12)
Calculate Your Total Interest Savings:
To find out how much interest you will save, calculate the total interest paid before and after the recast:
- Total Interest Before Recast: This can be calculated based on the original loan terms.
- Total Interest After Recast: Calculate this using the new monthly payment over the remaining term.
The savings can be represented as:
Interest Savings = Total Interest Before Recast − Total Interest After Recast
Example Calculation
Let's say you have a $200,000 mortgage at 4.99% interest with 25 years left, and you can make a $40,000 lump-sum payment. This payment reduces your principal to $160,000. The lender then recalculates your monthly payments based on this new, lower balance while keeping the original interest rate and remaining term.
They use a standard mortgage formula that considers the new balance, monthly interest rate (4.99% divided by 12), and remaining payments (25 years times 12 months). This calculation results in a new, lower monthly payment.
Here's the example calculation:
- New principal balance: $200,000 - $40,000 = $160,000
- Monthly interest rate: 4.99% / 12 = 0.4158%
- Number of remaining payments: 25 years * 12 months = 300 payments
Monthly Payment = 160,000 * (0.004158 * (1 + 0.004158)^300) / ((1 + 0.004158)^300 - 1) ≈ $857.94
So, your new monthly payment after the recast would be approximately $857.94, down from the original payment of $1,072.43 (calculated using the same formula with the original $200,000 balance).
This recast would save you $214.49 per month on your mortgage payment.
Don't have time to spend on calculations? Use our free mortgage recast calculator for immediate results based on your input data.