What Is a Mortgage Recast? How Does It Work?

If you have come across extra money and want to lower your monthly mortgage payments without refinancing, you can ask your lender for a mortgage recast. Want to know what is a mortgage recast, and how you can utilize it for your benefit? This blog will delve into the mortgage plan, and how it’s different from a refinance.

Key takeaway

Mortgage recasting lets you make a one-time payment on your mortgage to lower your future monthly payments and overall interest.
Your interest rate and loan term stay the same when you recast your mortgage.
Compared to refinancing, recasting might be easier and less expensive, depending on the size of your lump sum payment.

What is a mortgage recast?

Mortgage recasting is like a reset button for your mortgage payments – a kind of prepayment toward your existing mortgage. With this feature, you can make a large payment towards your mortgage principal, and your lender will adjust your remaining monthly payments based on the new, lower mortgage balance.

Keep in mind that this doesn’t change your interest rate or loan term. Furthermore, some mortgages have a set date for this adjustment, while others may require a minimum payment or a good payment history to qualify. However, not all types of mortgages offer recasting options. These include Federal Housing Administration (FHA) loans, the United States Department of Veterans Affairs (VA) loans, and U.S. Department of Agriculture (USDA) loans.

How does a mortgage recast work?

Before deciding whether mortgage recasting is the right strategy for managing your mortgage payments (and achieving long-term financial objectives), take a look at how the mortgage works.

Making the lump-sum payment

When considering a mortgage recast, it’s important to assess your financial situation and determine how much extra cash you can allocate towards your mortgage. This large lump-sum payment can come from various sources, such as savings, a bonus, inheritance, or the sale of assets. Some lenders may have a minimum requirement for the lump-sum payment, so it’s essential to check with your lender beforehand.

Recalculation of mortgage loan amount

After making the payment, your lender will recalculate your loan amount based on the reduced principal balance. This recalculation is done using the remaining life of your loan and your existing interest rate. The result is a lower monthly payment since you’re now paying off a smaller home loan amount over the same remaining term. It’s crucial to note that the interest rate and loan term remain unchanged during the recasting process.

Recast fee

While mortgage recasting typically incurs a fee, it’s usually much lower than the closing costs associated with refinancing. The recast fee covers administrative expenses related to adjusting your loan, such as paperwork processing and account updates. The fee amount varies depending on the lender but is generally a one-time cost. Despite the fee, mortgage recasting can still be cost-effective compared to mortgage refinancing, especially for those looking to lower their monthly payments without significantly altering their loan terms.

Impact on interest payments

One of the significant benefits of mortgage recasting is the potential savings on interest payments over the life of the loan. With a reduced loan balance resulting from the lump-sum payment, less interest accrues each month. This means that not only do you enjoy lower monthly payments, but you also pay less interest overall.

Duration of lower payments

Your new, lower monthly payments will continue until the loan is paid off. It’s important to understand that while the monthly payments decrease, the overall term of the loan remains the same. However, if you continue making the same payments as before the recast, you may pay off the loan ahead of schedule. This flexibility allows borrowers to manage their cash flow more effectively while still working towards paying off their mortgage.

How to calculate mortgage recast?

First, pick the date for your lump-sum payment and lower your loan balance. Then calculate your new monthly payments for the remaining loan years using the same interest rate.

Let’s take an example of mortgage recast: Suppose you have a $350,000, 30-year fixed-rate mortgage at 4.25%. Your monthly payment is roughly $1,723 for principal and interest.

After ten years, you receive a $200,000 windfall lump sum. If you don’t recast, your payments remain approximately $1,723, but your loan term decreases as you pay off more principal. However, if you decide to recast over the remaining 20 years, your payment decreases to about $1,075 monthly for principal and interest.

Mortgage recast vs. mortgage refinancing: What is the difference?

When comparing mortgage recasting to refinancing, the key distinction lies in their processes and outcomes. Refinancing is when you apply for a new mortgage and pay closing costs. This new loan replaces the existing one, often with a different interest rate. Borrowers typically opt for refinancing to secure a lower interest rate, transition from adjustable to fixed mortgage rates, or access home equity through a cash-out refinance.

On the other hand, mortgage recasting preserves the current loan while adjusting its amortization schedule. While recasting doesn’t offer lower interest rates or shorter loan terms, it’s beneficial when existing rates are already favorable compared to prevailing ones. In such cases, retaining the current rate makes recasting more appealing than refinancing.

Remember that while recasting offers immediate relief in the form of lower monthly payments, refinancing may provide additional benefits, such as a lower interest rate, shorter loan term, or access to equity. Therefore, it’s crucial to weigh the pros and cons of each option based on your financial goals, current interest rates, and loan terms.

When should people use mortgage recast?

Homeowners often use mortgage recasting in a few typical situations. Firstly, when they buy a new home before selling the old one. They can recast the mortgage on the new home once they sell the old property and use the sale proceeds to lower their new mortgage. Secondly, people who come into a large sum of money, like an inheritance or a big work bonus, may choose to recast their mortgage to reduce their monthly payments.

Can I qualify for a mortgage recast?

To qualify for mortgage recasting, you need to meet certain criteria:

Loans backed by the government, such as FHA, USDA, or VA loans, typically don’t qualify for recasting. You’ll likely need to refinance if you have one of these loans and want to adjust your payments.
Most loan lenders require you to pay a minimum amount towards your principal before qualifying for recasting. It’s often around $10,000 or a percentage of your principal.
Some lenders may require a certain level of equity in your loan before allowing recasting. This can be a fixed dollar amount or a percentage of your principal balance.
Lenders may also require a history of on-time payments before allowing recasting.

What are the pros and cons of a mortgage recast?

This table will help you weigh the benefits and drawbacks of mortgage recasting.

Mortgage Recast Pros	Mortgage Recast Cons
Recasting is cheaper than refinancing.	Some lenders don’t allow extra payments towards the principal.
No need to worry about credit scores, credit checks, or appraisals.	Government loans such as FHA or VA loans usually can’t be recast.
You can keep your current interest rate.	You need to make a minimum lump-sum payment. And, there’s a fee.
A good option if you have extra money to put towards your loan but want to keep your payments manageable.	Your monthly payment decreases, but your loan term remains unchanged.
Your extra payment goes directly to reducing your loan balance.	Your extra cash is tied up in your home’s equity, so you can’t easily access it if needed.

FAQs

Can you extend mortgage amortization?

Yes, but it can be expensive. You can extend it by refinancing into a longer loan or through loan modification. Refinancing could mean changing a 15-year mortgage to 30 years, but it might trigger prepayment penalties. Loan modification can extend a 30-year mortgage, but asking your lender about extra interest is best.

How is mortgage recasting different from making principal payments?

Mortgage recasting reamortizes your loan, while extra principal payments chip away at your balance on the original schedule. Recasting involves larger lump sums than regular payments.

Should you recast or refinance your mortgage?

Recasting is best if you want to keep your current rate and have cash for a lump sum. Refinance is better for getting a lower rate or taking equity cash.

How soon can you recast a mortgage?

You can usually recast after 2 months of making payments as agreed.

What are some ways to save on your mortgage?

You can save by refinancing for lower rates, eliminating Private Mortgage Insurance (PMI), making extra payments, or requesting a loan modification.

What is a mortgage recast? Do you qualify for one? was last modified: June 23rd, 2025 by Ramona Sinha

Written by Ramona Sinha. June 11, 2024

Ramona is the Senior Content Writer for Kukun. This experienced blogger uses simple and succinct words to decipher the complex phenomenon called life. She has written articles covering a broad range of topics, such as real estate, lending and mortgage, finance, business, taxation, home designs, home improvement projects, decor concepts, and more. An avid traveler, she’s a digital nomad at heart and an animal lover from the depth of her soul.