It seems that week after week, the 30-year and 15-year fixed-rate mortgages have been setting records lows. As a result, many homeowners have taken advantage of the opportunity to lower their monthly mortgage payments by refinancing their loans. In fact, some borrowers have repeated the mortgage refinance scenario two or three times over the past few years.
Even with rates reaching the lowest level seen since the introduction of the long-term mortgage product in the 1950’s homeowners should evaluate their personal circumstances to determine if refinancing their mortgage is really worth the effort and end of costing them in other ways.
Another Way to Lower Your Interest Rate
As reported in a recent Forbes article, a blogger for the website NoCreditNeeded found a method to get the mortgage lender to lower his interest rate by more than 1.5%, which reduced his monthly payment also allowed for faster repayment of the loan.
After carefully analyzing whether to refinance their existing three-year old mortgage, the blogger and his wife concluded that the mountain of paperwork was not worth the hassle. In addition, they did not want to refinance to a lower interest rate at the cost of entering into a new 15-year fixed-rate mortgage and paying exorbitant closing costs.
The borrower simply called the lender and discussed lowering the interest rate on his mortgage without modifying the other terms of the loan or “recasting the mortgage.”
How Does Recasting Work
Many homeowners have little, if any knowledge of recasting. Those who have heard of the process associate it with troubled borrowers who work with their lenders to lower the interest rate on their mortgages and keep them out of foreclosure. Usually, lenders will not recast mortgages for borrowers who have managed to stay current with their obligations and remain in good standing with the bank.
However, in the current economic environment, many lenders would choose to recast the mortgage rather than end up with a non-performing asset on their books.
Borrowers who can get their banks to agree to recast their home mortgages will have to fill out paperwork, but far less than the mortgage refinancing process requires. Banks also charge a processing fee of around $300 or $400. In some cases, you may have to make a lump-sum payment to entice the lender into agreeing to recast the mortgage.
If the lender makes this a condition of the transaction, do your homework to determine if the savings is worth the investment of cash.
Benefits of Recasting Your Mortgage
Borrowers who lower their monthly mortgage payment can use the savings to make extra mortgage payment and pay off their loans in less time. Even if you have tarnished credit, speak to your lender about recasting your mortgage because it does not require a credit check.
Here are some other reasons you may want to consider recasting your mortgage:
- You are a self-employed person who can’t document income to qualify for mortgage refinance.
- You received an inheritance or other lump-sum payment and determined that you will be better off financially putting it toward your mortgage.
- You may be near retirement or in danger of losing your job and would like the peace of mind of having more affordable mortgage payment.
After performing your due diligence, if you have good credit and a high mortgage interest rate, refinancing your loan may represent the best option, especially if you have a strong reason for tapping your equity for needed cash. In addition, if you have a lump sum and already have a low interest rate mortgage, other investments, such as the stock market or rental property may give you a better return on your money over time.
Homeowners with other debt, such as high interest rate auto loans or credit cards should decide if using the money to pay off these debts makes better financial sense than recasting your mortgage or the other options presented.