A house you haven't fully paid for can be a liability, but what if you…
No matter where you live or what kind of home you own, chances are your monthly mortgage payment is your single biggest expense. So saving money on the mortgage could improve your finances substantially, giving your budget more breathing room and allowing you to spend your remaining money more wisely.
You may think that refinancing the mortgage is your only option for saving money, but there may be an even better option available. If you have some extra cash sitting on the sidelines, you may be able to recast your mortgage instead. And when the process has been completed, you will be left with much lower monthly payments going forward and a smaller loan balance in the process.
What is a Mortgage Recast?
You have probably heard of mortgage refinancing. Maybe you have even considered refinancing your home loan as interest rates dropped. But what about mortgage recasting, also known as re-amortization?
Recasting your mortgage is different from a traditional refinancing offer, and these differences could save you a lot of money. When you recast your mortgage, you will typically pay off part of the principal, resulting in a lower outstanding amount going forward.
What Happens Next?
Once the mortgage recasting has been completed, the monthly payments will be reset based on the original interest rate and loan terms. And since the original mortgage terms remain unchanged, recasting is much simpler than the refinancing process you may be familiar with.
Since the amount you owe on your mortgage has now been reduced by the size of the lump sum, the reset results in lower, often sharply lower, monthly payments going forward. Depending on the size of the loan and the number of payments remaining, the recasting process could save you a ton of money over the years.
Are There Any Fees?
While typically less expensive than a refinancing offer, mortgage recasting is not free of fees. Most lenders will charge an administrative fee, typically around $150 or slightly more. But since closing costs are not required in a recasting, this option is generally much less expensive than refinancing.
Is Mortgage Recasting Right for Me?
There are a number of things to consider before embarking on a mortgage recasting process. Recasting may be the best option for homeowners who are unable to qualify for a refinancing offer due to credit problems. Recasting may also be a good choice for business owners and the self-employed, who often have issues proving their income to qualify for a refinancing offer.
Mortgage recasting is also a great choice if you have extra cash reserves, especially if that money is stuck in a low yielding savings or money market account. By applying the extra cash to your mortgage, you can reduce the amount you owe while enjoying lower monthly payments for the life of the loan.
If you think refinancing your mortgage is the only option, you may want to think again. If you have some extra cash and the desire to lower your monthly expenses, recasting can be a smart financial move.