For some, recasting their home loan might be the choice tactic for lowering their monthly payments. Before lenders tightened mortgage loan regulations and standards, borrowers were able to obtain no document loans, effectively acquiring new home loans with little to no proof of income, credit or even citizenship. These individuals, in most cases, have very little chance of being able to refinance their home loans. Even if these borrowers have a high income or excellent credit, tighter lending standards could keep them from refinancing their home mortgage loans.
For borrowers such as these, recasting their home mortgage might be their best option. Recasting also known as reamortizing, allows a borrower to reduce their monthly payments by paying a large sum of money towards the principle on their home loan. They are able to do this to their existing fixed-rate mortgage by paying a fee to their loan servicer. Recasting is not available for all home loans. To find out if a borrower is able to recast their home loan, they need to contact their loan servicer.
A mortgage recast works like this: a borrower contracts their loan servicer and asks if they can recast their home loan by paying a sum of money towards their principle. If the borrower agrees to recast the mortgage, the payments could be reduced and the borrower will have to pay a fee to the loan servicer in order for the recasting to take place. The fees are most commonly related to the loan servicer’s time and paperwork. Not all loan servicers allow this practice and many of those that do require minimum amounts of money put towards principle in order for a borrower to recast their loan. Fees also vary from loan servicer to loan servicer.
It is also important to note that in a recasting, the number of payments remains the same and the interest rate on the loan does not change. All that takes place is a reduction of the principle loan amount, which effectively reduces monthly payments depending on how much of the principle was paid down.
After reading this you should understand what recasting is and why it is used. You should also know how the process of recasting works and whether or not it will help you.
See also:
What is Mortgage Recasting
Current Mortgage Rates
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So this is basically just like a pre-payment to reduce principal on the loan? I guess I feel like if I had enough extra money sitting around to recast the loan, I wouldn’t need to recast it in the first place. But I suppose it saves on the total amount of interest paid on the loan in the end.
For home owners not upside down and with extra cash handy, this could be a good solution for them.