Some homeowners want to reduce their monthly mortgage payment, but prefer not to or cannot mortgage refinance. A little known option, called “recasting” or “re-amortization, can help you accomplish this objective.
The technique requires you to make a lump sum payment. The mortgage lender recalculates the mortgage to reflect the one-time payment. Recasting your mortgage does not reduce the amortization period. If you start out with a 30-year fixed rate mortgage, the term remains the same.
Not all mortgage lenders advertise their recasting service, so you will have to make inquires to your bank and make a formal request. The cost of the recasting service starts is usually around a few hundred dollars, which surely beats expenses associated with a mortgage refinance. The bank will require a minimum lump-sum payment -- about five thousand dollars. Some lenders based the minimum amount on a percentage of the loan balance, such as ten percent.
Does Your Mortgage Qualify
If a relative left you an inheritance, or you received a substantial bonus, ponder the benefits of ponder recasting your home loan. However, you before attempting to recast your mortgage, determine if your loan qualifies for the service.
Three types of mortgage are candidates for re-amortization:
- Private lenders (conventional loans)
- Fannie Mae
- Freddie Mac
Mortgages guaranteed by the Federal Housing Administration (FHA) or Department of Veteran Affairs (VA) do not qualify for recasting. Fixed-rate mortgage comprised most re-amortizations. However, some mortgage bankers will permit borrowers to recast adjustable rate mortgage or jumbo loans. Check with your lender to determine its policy for recasting loans.
How to Determine If You Should Recast
First, assess your private financial circumstances and objectives. For instance, if you have the intention of paying off your loan balance as quickly as possible, it may work to your advantage to make one extra payment each year or send extra payments twice a month.
If you have tarnished credit, which keeps you from refinancing your loan, request a mortgage recast. The mortgage lender does not have to consider your credit -- the norm when applying for a mortgage refinance -- to modify monthly payments for the existing mortgage.
Go to the MortgageRefinance.com mortgage calculator to figure out the amount of the new payment based on making various lump-sum payment amounts.
Recasting When Selling and Buying a Home
If you intend to sell your existing home and buy another residence, arrange the sale and purchase transactions to take advantage of recasting. You will need the resources to handle two mortgage payments for a short while.
Upon selling your old home, employ some of the profits from the sale to reduce the balance of the loan on your new home and lower your monthly mortgage payments. Find out the bank’s policy on recasts. Most will not allow borrowers to re-amortize loans within the first 90 days of the due date for the initial loan payment.
Again, recasting your loan requires you evaluate your financial plan. If you have available cash, it may make more sense to eliminate credit cards debt or other obligations. Some people may decide to invest the money in their retirement account or purchase investment property.
If your bank does not offer a loan recasting option, inquire about a loan modification, which reduces your monthly mortgage payments. However, most lenders require borrowers to have up-to-date mortgage payments and a minimum credit score.