RECASTING A MORTGAGE

There are a number of ways to lower your monthly payments on your mortgage. The most popular is certainly refinancing, because you can lower your rate, extend your mortgage back out another 30 years, or eliminate mortgage insurance. But refinancing often carries fees and can be an intensive process. Another common way people lower their monthly mortgage payment is having their home’s taxes reassessed. This was a very common practice over the last few years, because house values have been continuing to decrease, meaning the assessments would come down, as well. Many people also wait five years and have their homes reassessed for mortgage insurance, hoping they have accrued the necessary 20% equity in their home to eliminate their mortgage insurance.

The problem with all of these methods of lowering their payments is that they rely upon factors external to their current mortgage. And what I mean by this is that they are contingent upon the value of their home, their current credit and income, and current interest rates. But a strategy I have seen catching on lately is mortgage recasting.

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A mortgage recast is when a lender re-amortizes a loan over the time left to repay it at the same interest rate based upon the now current balance due. Sound complicated? It’s not. Basically, the lender takes the current balance, determines what a new loan payment would be for the time left on the mortgage at the current interest rate. So the only consideration for a mortgage recast is the mortgage itself.

This can be a very helpful way to lower payments if you have recently made a large principal payment to the mortgage, or if you are intending to do so soon. The more money you put toward your mortgage early, the lower your new payments will be. This is a strategy many of my clients have used after receiving a large tax return, and remains a common practice for clients who want to buy a new house before selling their current one.

If you have any questions about mortgage recasting or about how it might compare to a refinance, please contact me. If you have anything else to add about recasting a mortgage, please leave a comment.