Thinking of making a lump sum payment? Calculate your new monthly payment and total interest savings after a mortgage recast. Keep your rate, lower your payment.
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A mortgage recast (sometimes called a re-amortization) is a financial strategy where you make a large, lump-sum payment toward the principal balance of your mortgage, and your lender recalculates your monthly payments based on the new, significantly lower balance. The two most important features of a recast are that your original interest rate remains exactly the same, and the remaining term (the time left to pay off the loan) does not change. By lowering the principal balance, your monthly required payment drops, making your monthly budget much more manageable.
Many homeowners confuse recasting with refinancing, but they are entirely different tools. Refinancing involves taking out a completely new mortgage to replace the old one. It is typically done to secure a lower interest rate or change the loan term (e.g., from 30 years to 15 years), and it comes with hefty closing costs (often 2% to 5% of the loan amount). Recasting, on the other hand, keeps your current loan intact. It is ideal if you already have a fantastic, low interest rate that you do not want to lose. Recasting fees are usually very small—typically between $150 and $500—making it a highly cost-effective way to lower your monthly obligations.
When a lender recasts your loan, they use the standard amortization formula: M = P[r(1+r)^n] / [(1+r)^n - 1]. In this calculation, 'P' is your new principal balance (your old balance minus your lump-sum payment). 'r' is your monthly interest rate (annual rate divided by 12). 'n' is the total number of months remaining on your loan. Because 'r' and 'n' stay exactly the same, the only variable shrinking is 'P'. The mathematical result is a proportional decrease in your monthly required payment. Furthermore, because interest is calculated against the principal, a smaller principal means you pay significantly less total interest over the life of the loan.
A mortgage recast is an excellent option if you have recently come into a large sum of money—such as an inheritance, a work bonus, or the proceeds from selling another property—and you want to reduce your monthly living expenses without giving up the low interest rate you secured years ago. However, if your current interest rate is much higher than today's market rates, refinancing might save you more money in the long run. Also, note that recasting does not give you cash in hand; it locks your liquidity into your home equity.
No, not all mortgages are eligible for recasting. If you have a government-backed loan—such as an FHA loan, a VA loan, or a USDA loan—you generally cannot recast your mortgage under any circumstances. Recasting is almost exclusively a feature of conventional loans. Additionally, lenders usually have strict requirements: your loan must be in good standing, you usually need to make a minimum lump-sum payment (often $5,000 or $10,000), and you may have to wait a certain period (e.g., 90 days) after the loan originates before requesting a recast.