What is a Mortgage Recast?

Mortgage Recast

A mortgage recast is the process of applying a significant payment to your mortgage balance also called a principal curtailment and having the mortgage servicer recalculate your mortgage payment at the same interest rate over the remainder of your loan term.

Principal curtailments usually occur when a consumer purchases a new home and their current home sells later. The amount of proceeds from the old home are then applied in part or in whole to the new home mortgage. Effectively you have reduced your monthly payment and lowered the amount of interest you will pay over the life of the loan.

First, you should check with your mortgage servicer to ask about their recast process. There may be a minimum amount they would require. Also, there is usually a nominal administrative fee for the request between $150 – $300. Lastly, check to see how often you can have your loan recast. Most mortgage servicers only allow it once over the life of the loan.

Only conventional and jumbo loans are eligible for recasting. Any FHA or VA loans are not eligible. You also need to have a solid, on time pay history on your loan to qualify.

Recasting a loan is normally better, easier and less costly than refinancing your loan especially if prevailing interest rates are higher than your current rate.

As always, consult with your trusted mortgage advisor when researching and learning about these options.