Recasting Your Mortgage

We’ve just learned something new! Yes, it’s true, we as agents are always learning new things especially in the financial sector. Jessica recently had a lender tell her about loan recasting. So what is it and how can it benefit you?

Loan recasting is a financial strategy that homeowners can use to reduce their monthly mortgage payments without refinancing. This option can be especially beneficial for those who have recently come into a lump sum of money and want to apply it to their mortgage. You may have heard the term “reamortization”, same thing. Say you get a supplemental check from somewhere or an inheritance. You can use that money to pay towards your mortgage principal, your lender then recalculates the loan based on the new, lower principal balance. So now you have a lower monthly payment and nothing changes regarding your interest rate or the term of the loan.

What you need to keep in mind is your loan type, usually this pertains to conventional loans. FH
A, VA and USDA usually don’t qualify. Sometimes there is a fee for recasting which is minimal, depending on your lender. The lump sum requirement is commonly around the $5,000 mark.

Now if you are eligible, you have some perks. Besides the ease of recasting with little paperwork and headache, you are also not required to have a credit check, and you can avoid closing costs and fees usually associated with refinancing. And, although there is no change in your interest rate, let us ask: How many of you bought when rates were as low as 2.5%? Doesn’t seem so bad in this current market does it?

So how does this benefit you if you are house hunting and have a home sale contingency? For one, if you have to carry two mortgages during the process, it can make the financial load lighter. It also makes your offer look better because you don’t have to include the home sale contingency, it will give you more leverage in negotiations. Another benefit is using the extra saved funds to entice buyers to your home through staging, closing costs, or doing repair work.

Evaluating loan recasting could be a valuable tool in helping you reduce monthly mortgage payments and save you some headache in lieu of refinancing. If you’d like more information on how this can benefit you or if you are eligible for loan recasting, feel free to contact your preferred lender or we are happy to provide you with a referral to ours.