Is It Time to Recast Your Mortgage? Pros, Cons and How to Do It

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Updated: November 12, 2024

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To recast your mortgage means making a large lump-sum payment toward your loan principal, which lowers your monthly payments while keeping your interest rate and loan term the same. Unlike refinancing, which changes the terms of your mortgage, recasting is a simpler process with fewer fees. Not all lenders offer the option to recast your loan, so it's important to confirm first. If allowed, recasting can be a good choice if you've received a windfall, such as a bonus or inheritance, and want to lower your monthly payments.

Whether you're looking to free up cash flow or pay off your home faster, recasting your mortgage can be a smart financial move in the right situation. We'll walk you through what mortgage recasting involves, its pros and cons and how it compares to other options.

Key Takeaways

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A mortgage recast reduces your monthly payments with a lump-sum principal payment, keeping your loan's original terms intact.

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One benefit of recasting is lower monthly payments, but it requires a large upfront lump-sum payment, which can be a financial strain.

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If recasting isn’t an option, consider refinancing for a lower rate or making extra payments to reduce your loan balance faster.

What Does It Mean to Recast Your Mortgage?

Recasting your mortgage means making a lump-sum payment toward your loan principal, which lowers your monthly payments without changing your interest rate or loan term. It’s a straightforward process that reduces your debt, resulting in a smaller monthly payment.

For example, if you receive a $20,000 bonus, you could use it to recast your mortgage. After the payment, your lender recalculates your loan balance, lowering your monthly obligation while the interest rate and loan length remain unchanged.

Unlike refinancing, which involves taking out a new loan with new terms, recasting keeps your existing mortgage intact. This makes recasting faster and cheaper, as there are no closing costs or lengthy application processes.

How to Recast Your Mortgage

The steps to recast your mortgage are straightforward and easy to follow. Here’s a simple guide to walk you through the process:

  1. 1
    Review your mortgage status

    Make sure you're up to date on payments. Late payments within the last 12 months may disqualify you from recasting.

  2. 2
    Contact your lender

    Some lenders don’t offer mortgage recasting, so check with your loan servicer to see if it’s an option for your loan.

  3. 3
    Confirm the lump-sum amount

    Your lender will tell you the required lump-sum payment, which can be as low as $5,000 or as much as $50,000.

  4. 4
    Apply for the recast

    Once you meet the requirements, complete a recast application, which the lender will provide.

  5. 5
    Make your payment

    Submit the lump-sum payment and any applicable recast fee, typically from $200 to $500.

Once done, your lender will adjust your monthly payments based on the lower principal balance.

Remember, you must continue making your regular monthly payments during the recast process. Missing a payment could jeopardize the recast and even put you at risk of late fees or penalties.

Pros and Cons of Recasting Your Mortgage

Recasting your mortgage can be a simple way to reduce expenses. However, you’ll need a significant lump-sum payment upfront, which may not be feasible for everyone. Understanding the benefits and drawbacks can help you determine whether it’s the right option for you.

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Pros
  • Lower monthly payment: Your monthly mortgage payment decreases after making a lump-sum payment toward the principal.
  • No credit check: Recasting doesn’t require a credit check, unlike refinancing, making it easier to qualify.
  • No closing costs: There are no closing costs, unlike refinancing, which can save you significant money.
  • Same interest rate: Your existing interest rate doesn’t change, which could be beneficial if rates have risen.
  • Low administrative fee: The fee for recasting is typically minimal, often ranging from $200 to $500.
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Cons
  • Not offered by all lenders: Some lenders don’t provide recasting as an option, limiting availability.
  • Not all mortgages qualify: FHA, VA and certain adjustable-rate loans are often ineligible for recasting.
  • Large lump-sum required: You’ll need to make a substantial one-time payment, which may not be feasible for everyone.
  • Interest rate stays the same: If current rates are lower, you won’t benefit from refinancing to lock in a better rate.
  • Loan term remains unchanged: While recasting doesn’t shorten the loan term, it does reduce the interest you’ll pay over time by lowering your monthly payments

Mortgage Recasting vs. Refinancing: What’s the Difference?

When deciding between recasting your mortgage and refinancing, it’s important to understand how they differ. Each option has its own costs, requirements and effects on your loan. The table below highlights the key differences.

Comparison Area
Recasting
Refinancing

Definition

You make a lump-sum payment toward the principal, reducing monthly payments.

You replace your current loan with a new one, typically with a new interest rate or term.

Fees

Low administrative fee, usually $200–$500.

Higher fees, including closing costs, typically 2%–5% of the loan amount.

Eligibility

Not all lenders or loan types qualify.

Generally available for most mortgage types but requires qualification based on credit and income.

Change in Rate

Interest rate stays the same.

Interest rate changes based on current market rates.

Change in Term

Loan term remains the same.

Loan term can be adjusted (e.g., switching from a 30-year to a 15-year loan).

Should You Consider Mortgage Recasting?

Before deciding if recasting your mortgage is the right move, ask yourself these key questions. Each will help you weigh the pros and cons based on your personal financial situation.

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    Do I have enough cash for a lump-sum payment?

    Recasting requires a large one-time payment toward your principal. This could be a good option if you have the funds available — such as from a bonus or inheritance. However, recasting might not be ideal if using the lump-sum would deplete your savings.

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    Am I happy with my current interest rate?

    Since recasting your mortgage keeps the same rate, it’s best if your rate is competitive. Refinancing could be a better choice if current interest rates have dropped significantly.

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    Do I want to reduce my monthly payment without extending my loan term?

    Recasting lowers your monthly payments without changing the loan length. If that’s your goal, recasting is a good option. However, refinancing is the better route if you want to shorten your loan term.

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    Is my loan eligible for recasting?

    Some loan types don’t qualify for recasting. If your mortgage doesn’t qualify, refinancing may be your only option for changing your payment structure.

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    Do I plan to stay in the home long-term?

    Recasting is most beneficial if you plan to stay in your home for a while. If you’re considering selling soon, the upfront lump-sum payment may not be worth it.

Eligibility for Mortgage Recasting

To recast your mortgage, you must meet specific requirements. Not all loans qualify, and lenders may have different rules. Here’s what you need to know about eligibility:

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    Conventional loans only

    Recasting is limited to conventional loans, including conforming and jumbo loans. Government-backed loans like FHA, VA or USDA are ineligible.

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    Minimum lump-sum payment

    MDepending on the lender's policy, most lenders require a lump-sum payment.

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    Loan in good standing

    Your mortgage must be current, with no late payments in the last 12 months, to be eligible for recasting.

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    Equity requirement

    Some lenders may require a minimum amount of equity in your home before allowing a recast.

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    Lender-specific rules

    Each lender may have additional conditions, so it’s important to check directly with them for details.

How to Calculate Your Mortgage Recasting Savings

To see how much you can save when you recast your mortgage, it's helpful to walk through a real-life scenario. Let’s consider Sarah, who has a 30-year fixed-rate mortgage and is considering recasting after paying her mortgage for 15 years. She recently received a $25,000 bonus and wants to lower her monthly payment. Here’s how she calculates the savings:

  1. 1
    Determine Your Lump-Sum Payment

    Sarah plans to apply the entire $25,000 bonus as a lump-sum payment. Her lender requires at least $10,000, so she qualifies with no issues.

  2. 2
    Calculate Your New Loan Balance

    After 15 years, Sarah’s original $300,000 mortgage has a remaining balance of $205,547. Once she applies the $25,000 lump-sum, her new balance drops to $180,547.

  3. 3
    Recalculate Your Monthly Payments

    Sarah’s original monthly mortgage payment was $1,520 with an interest rate of 4.5%. After recasting, her new monthly payment decreases to $1,381—saving her $139 every month.

  4. 4
    Estimate Your Interest Savings

    By using a mortgage recast calculator, Sarah sees that recasting her mortgage lowers her monthly payment and reduces her interest payments over the life of the loan. Over the remaining 15 years, she’ll save approximately $9,400 in interest.

A mortgage recast calculator can simplify the process and show your potential savings quickly. Be sure to have your current mortgage balance, remaining loan term and interest rate handy to get accurate results. This tool helps you see how a lump-sum payment can affect your monthly payment and interest savings.

Alternatives to Mortgage Recasting

If recasting your mortgage isn’t an option, there are other ways to reduce your monthly payments. These alternatives can help you save on interest or lower your mortgage costs over time, even if a lump-sum payment isn’t feasible or your lender doesn’t offer recasting.

Alternatives
What It Is
Who Should Consider It

Refinance your mortgage

Replace your current loan with a new one at a lower interest rate.

Consider if rates have dropped significantly and you want to save on interest.

Make extra payments

Make one extra mortgage payment annually to reduce your loan principal.

Ideal if you want gradual savings without changing your loan terms.

Remove private mortgage insurance (PMI)

Pay down enough of your mortgage to reach 20% equity and remove private mortgage insurance.

Best if you want to reduce monthly payments by eliminating PMI.

Loan modification

Work with your lender to change loan terms if you’re facing financial hardship.

Ideal if you're struggling financially and need relief through lower payments or extended terms.

Review your budget

Reallocate household savings toward additional mortgage payments.

Good option if you have flexibility in your budget and want to pay off your mortgage faster.

FAQ: Mortgage Recasting

If you’re considering recasting your mortgage, you may have some common questions about how the process works and when it’s a good option. Below, we’ve answered a few important questions to help clarify the ins and outs of mortgage recasting.

Can you recast a mortgage more than once?
Is mortgage recasting a good idea if you plan to sell your home soon?
Does mortgage recasting affect your credit score?
How soon can you recast your mortgage?
Is it better to pay down the principal or recast?

About Zachary Romeo, CBCA

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Zachary Romeo is a certified Commercial Banking and Credit Analyst (CBCA), and the Head of Loans and Banking at MoneyGeek. Previously, he led production teams for some of the largest online informational resources in higher education, with over 13 years of experience in editorial production.

Romeo has a bachelor's degree in biological engineering from Cornell University. He geeks out on minimizing personal debt and helping others do the same through people-first content.

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