Understanding Mortgage Recasting
A mortgage recast allows homeowners to apply a large payment toward the principal of their existing loan. Instead of shortening the term, the remaining balance is re-amortized so monthly payments drop while the interest rate and maturity date stay the same. It can be a smart move for those who come into extra funds yet want to keep their current loan intact.
How the Formula Works
The calculator uses the standard mortgage payment formula but recalculates it after subtracting the lump sum from the principal. The difference between your original payment and the new payment shows the monthly savings.
Benefits of Recasting
Lower monthly payments free up cash flow for other priorities such as home repairs or savings goals. Because you pay less interest over time, it can also reduce the total cost of the mortgage. Unlike refinancing, there are typically minimal fees, and you keep your existing rate.
Considerations
Some lenders require a minimum lump sum for recasting or may charge a small administrative fee. Recasting does not shorten the length of your loan, so you could pay more interest overall compared to just making extra principal payments. Review your financial goals to see if a recast aligns with your plans.
Example Calculation
Suppose you owe $250,000 at 4% interest with 300 months remaining and pay $1,193 each month. By applying $20,000 toward your balance, your new payment drops to about $1,097, saving roughly $96 per month. Over the loan's life, these savings can add up significantly.
Evaluating the Break-Even Point
Because you must part with a large chunk of cash when you recast, it's helpful to know how long it takes to recover that money. The break-even calculation divides the lump-sum payment plus any recast fee by your new monthly savings. If the result is 40 months, for example, you'll start coming out ahead after a little more than three years.
Think about how long you plan to stay in the home. If you expect to move before reaching the break-even point, recasting might not make sense. On the other hand, if you intend to keep the property for decades, the interest savings and lower payments could be worth the upfront expense.
Gathering Your Input Numbers
Before running the calculator, take a few minutes to collect precise figures. Review your most recent mortgage statement to find the outstanding principal balance, current monthly payment, and remaining term in months. If your loan includes escrow for taxes and insurance, subtract that portion so you enter only the principal and interest payment. Contact your lender to confirm the minimum lump sum required for a recast and any associated fee. Knowing these details helps you model realistic scenarios rather than relying on estimates. You may also wish to check your interest rate and ensure the loan allows recasting—some government-backed loans or special programs prohibit it.
How to Use the Calculator Step by Step
- Enter the current balance. This is how much principal you still owe before making the lump‑sum payment.
- Type your existing monthly payment. It should include only principal and interest.
- List the months remaining. If you have 25 years left, multiply by 12 for 300 months.
- Add the lump sum. Many lenders require at least $5,000, but policies vary.
- Input the annual interest rate. The calculator converts this to a monthly figure internally.
- Include the recast fee. Some lenders charge $150 – $500 to process paperwork.
- Click calculate. Review the new payment, total interest saved, break‑even point, and early payoff scenario.
- Copy the results. Use the provided button to paste the summary into emails or a planning spreadsheet.
When a Recast Makes Sense
Recasting is particularly helpful for homeowners who receive a large lump of money, such as a bonus, inheritance, or profit from selling another property, but want to keep their current interest rate. It reduces monthly obligations without resetting the loan term like a refinance would. Investors sometimes recast after paying down a rental property to improve cash flow. It also appeals to borrowers with low fixed rates who do not want to risk losing them by refinancing in a higher rate environment. The key is ensuring you will stay in the home long enough to benefit from the reduced payments after the break‑even period.
Understanding the Early Payoff Scenario
Our calculator now displays the payoff timeline if you continue making your original monthly payment after the recast. Many homeowners choose this path because it shortens the loan term dramatically. By keeping the higher payment, the extra dollars go directly to principal, eliminating interest more quickly. Comparing the two timelines—the scheduled payment versus the original payment—clarifies the trade‑off between lower monthly costs and faster equity building. The “Extra Interest Saved” figure shows how much additional interest you avoid by maintaining the old payment amount.
Advantages and Disadvantages
The primary advantage of recasting is lower required payments without the hassle of a full refinance. You retain your favorable rate and avoid credit checks or closing costs. However, you must part with a large sum of cash that could have been invested elsewhere. If your interest rate is high compared with current market rates, refinancing may offer bigger savings. Recasting also does not change the loan’s maturity date, so you might end up paying more total interest than if you made extra principal payments without recasting. Evaluate whether liquidity or long‑term savings matter most in your situation.
Alternative Strategies
Instead of recasting, some homeowners simply make one extra payment per year or add a set amount to each monthly payment. These methods reduce interest and shorten the term without any paperwork. Biweekly payment plans accomplish something similar by effectively making 13 payments per year. Another option is refinancing into a shorter term, such as 15 years, if rates are favorable. Each strategy has trade‑offs in cost, flexibility, and required cash outlay. Use this calculator alongside other mortgage tools to compare scenarios.
Worked Example in Detail
Imagine that the Smith family owes $280,000 on a 30‑year mortgage at 4.25% with 320 months remaining and a current payment of $1,377. They receive a $30,000 inheritance and consider a recast. Entering these numbers—along with a $250 fee—shows their new payment dropping to around $1,228, a savings of $149 each month. They would recoup their upfront cost in about 203 months. If they decide to keep paying the original $1,377, the loan would be paid off in 282 months instead of 320, saving 38 months and an additional $19,000 in interest. By reviewing both scenarios, the Smiths can decide whether improved cash flow or accelerated payoff better fits their goals.
Frequently Asked Questions
Can I recast multiple times? Some lenders allow it, but there may be limits or additional fees. Check your mortgage agreement before planning multiple recasts.
Does recasting affect escrow? No. Your escrow contributions for taxes and insurance remain the same unless those costs change.
Is credit pulled for a recast? Typically no, because the loan itself is not being replaced. This is an advantage over refinancing if your credit profile has changed.
Will my loan term change? The maturity date stays the same unless you continue paying the original higher amount, which accelerates payoff.
Long-Term Planning Tips
Keep a copy of your lender’s recast agreement and track the new payment schedule in a spreadsheet or budgeting app. Review your mortgage annually to see whether making occasional extra payments could further reduce interest. If you plan to invest the monthly savings, calculate the potential returns to ensure the recast provides net benefits after considering opportunity cost. Finally, maintain an emergency fund; tying up all your cash in home equity can leave you vulnerable to unexpected expenses.