Mortgage Recast Payment Reduction Calculator

Introduction: mortgage recast payment and interest estimates

This mortgage recast payment reduction calculator estimates what happens when a lender reamortizes your remaining fixed-rate mortgage balance after you make a lump-sum principal payment. It calculates the scheduled principal-and-interest payment before and after the recast, projected remaining interest in each case, and a simplified comparison with investing the same cash.

A recast is not a refinance. In this model, the mortgage keeps its existing interest rate and remaining number of payments; applying the lump sum reduces the balance that is spread across those remaining months. The result is a lower required principal-and-interest payment, while escrow can be included separately in the payment comparison.

Putting cash into home equity also has a trade-off: the funds are no longer as liquid, and they cannot simultaneously be invested. Use the recast figures to examine payment relief, projected interest savings, the fee you may pay to the servicer, and the opportunity gain assumed for an alternative investment.

Mortgage recast inputs you will need

For a useful mortgage recast estimate, collect the figures from your latest statement, note, or amortization schedule:

• Original loan amount (USD): The amount initially borrowed. This field provides context only; the calculator does not use it in the recast math.
• Current principal balance (USD): The unpaid principal used to calculate both the no-recast and recast schedules.
• Annual interest rate (%): Your note rate rather than APR. Enter 5.25 for a 5.25% rate.
• Months remaining on the loan: The number of scheduled monthly payments still left under the existing loan term.
• Lump sum applied to principal for recast (USD): The amount that reduces the balance before the loan is reamortized.
• Servicer recast fee (USD): A fee included in the calculator's cash-committed and simple-payback figures.
• Monthly escrow (USD): Optional taxes and insurance escrow added to both displayed total monthly payments; it does not affect mortgage interest.
• Annual investment return (%): A hypothetical constant annual rate used to model monthly growth of the lump sum if it were invested instead.

Mortgage recast formulas used to estimate your payment

This mortgage recast calculator applies the standard fixed-rate amortization payment formula to the current balance and then to the reduced balance. It assumes level monthly principal-and-interest payments for the remaining term.

Let:

• B = current principal balance before the recast
• L = lump sum applied at recast
• r = monthly interest rate, equal to the annual percentage rate divided by 1,200
• n = number of months remaining on the loan

The monthly principal-and-interest payment P before a mortgage recast is:

For the recast schedule, the calculator substitutes B − L for the balance and retains r and n. The new payment is therefore:

The mortgage recast results then compare the two schedules:

• Monthly payment change: The difference between pre-recast and post-recast principal-and-interest payments, with escrow added to both totals if supplied.
• Total remaining interest without recast: Interest accumulated through the remaining scheduled payments on the current balance.
• Total remaining interest with recast: Interest accumulated after the lump sum reduces the balance and the payment is reamortized.
• Interest saved by recast: The difference between those two projected interest totals. The recast fee is displayed separately rather than deducted from this figure.

How the mortgage recast investment comparison is modeled

The mortgage recast comparison also models the alternative of keeping the lump sum invested for the same number of months remaining on the loan.

The comparison uses:

• The interest saved by recasting, calculated from the two amortization schedules.
• The opportunity gain if invested, which is the projected investment future value less the original lump sum.

If R is the annual return entered as a percentage, the calculator converts it to a monthly rate by dividing by 1,200. Its projected future value is:

The displayed net benefit versus investing equals projected mortgage interest saved minus that investment opportunity gain. Although the recast fee is included in cash committed and the simple payback period, it is not subtracted from the displayed net-benefit comparison.

This is a constant-return illustration, not an investment forecast. Market returns can vary materially from the annual rate entered.

How to read mortgage recast results

After calculating a mortgage recast scenario, use the result table to compare the payment, interest, and opportunity-cost measures:

• Principal & interest payment: The required mortgage payment before and after the recast, excluding escrow.
• Total monthly payment with escrow: Principal and interest plus the monthly escrow amount entered. Since escrow is held constant, the payment difference comes from principal and interest.
• Total interest remaining: The projected interest under each remaining payment schedule.
• Interest saved by recast: The projected interest difference before considering the separate recast fee.
• Cash committed (lump sum + fee): The immediate cash amount used for the principal payment and entered servicer fee.
• Opportunity gain if invested: Projected investment growth above the original lump sum at the entered monthly-compounded rate.
• Net benefit vs investing: Interest saved minus the modeled opportunity gain. A positive value favors recasting on this narrow comparison; a negative value means the assumed investment gain is larger.

A mortgage recast decision is not determined by one output alone. Consider liquidity, the certainty of payment relief, investment risk, lender rules, and the role the mortgage has in your broader plan.

Worked example: fixed-rate mortgage recast payment reduction

This mortgage recast example uses a fixed rate, a 25-year remaining term, and a lump sum that is smaller than the current balance. It illustrates the same formulas used by the calculator.

Suppose the current balance is $300,000, the annual rate is 5.00%, 300 months remain, and $50,000 is applied to principal for a recast. Assume a $300 servicer fee, $400 monthly escrow, and a 6% hypothetical annual investment return.

The monthly mortgage rate is 5.00% divided by 12, or about 0.4167% per month. Applying the amortization formula produces a current principal-and-interest payment of about $1,754. Reamortizing the $250,000 balance over the same 300 months produces a payment of about $1,461. The required principal-and-interest payment falls by roughly $292 per month; adding the same $400 escrow to each payment does not change that reduction.

Over the full remaining schedule, the lower balance also produces less interest. The exact total depends on rounding conventions used by a servicer, while this calculator follows its monthly schedule calculation. The entered fee is added to the $50,000 cash commitment and affects the simple payback measure, not the interest-saved line.

For the alternative scenario, the calculator compounds $50,000 monthly at 6% divided by 12 for 300 months. That projected value is a hypothetical market-return result, whereas the mortgage payment reduction comes directly from the loan inputs. Comparing them helps distinguish cash-flow relief from a return assumption, rather than treating them as equivalent outcomes.

Summary comparison: mortgage recast vs investing the lump sum

Mortgage recast assumptions & limitations

This mortgage recast calculator models a straightforward reamortization, so review these assumptions before relying on its estimates:

• Fixed-rate loans only: The formulas hold the interest rate constant for all remaining months and do not model future ARM adjustments.
• Level monthly payments: The schedules assume each required payment is made on time with no further principal prepayments.
• Same remaining term: The recast lowers the payment by spreading the reduced balance across the existing remaining months; it does not shorten or extend the term.
• Constant escrow: Entered escrow is included only in total-payment comparisons and does not earn interest or affect the amortization calculation.
• Hypothetical investment returns: The investment alternative compounds at a constant user-entered annual rate converted to monthly growth. It does not model taxes, fees, inflation, or variable returns.
• Lender policies vary: Eligibility, minimum principal requirements, processing timing, and fees are outside the calculator and must be confirmed with the servicer.
• No tax advice: Mortgage-interest and investment tax effects are not included.

Important disclaimer: Mortgage recast results are educational estimates, not financial, tax, or investment advice. Confirm your servicer's recast policy, required principal payment, fee, and payoff information before sending a large payment.

How to use this calculator: compare a mortgage recast scenario

1. Enter the Current principal balance (USD), your mortgage's unpaid principal before the proposed recast.
2. Enter the Annual interest rate % and Months remaining on the loan from your note or amortization schedule.
3. Enter the Lump sum applied to principal for recast (USD), plus any recast fee and escrow you want included.
4. Calculate the mortgage recast impact, then test a different lump sum or investment-return assumption to see how payment relief and opportunity gain change.