Stephanie emailed in the following tip:
As I awaited a large tax refund earlier this year, I knew that I wanted to use the money towards our mortgage pay-off! I started to think that there has to be some way that I can apply a large sum of money towards my mortgage and make my monthly payments smaller. I entered my thoughts as a Google search and learned about a service sometimes called mortgage recasting.
Here’s what I learned about mortgage recasting:
• Most banks charge a fee (usually around $250-$500) for processing.
• You will need a minimum of $5000 to recast your mortgage.
• Your new payment will be based on your new loan amount and the remaining years left on your loan.
I emailed my loan provider immediately after learning this information. I was elated to find out that our bank and our loan qualified for this service!! Unfortunately, during my search, I also learned that not all loan providers or certain loans qualify!
The icing on the cake: this whole process was SO easy! I sent in our $5000 payment along with a $250 check for the processing fee. Our bank sent back a one page document to sign for our “loan modification.”
As of June 1, our payment is $46 cheaper! -Stephanie
Kamara says
I owe apx $225k on my condo. Thanks to my beloved Grandmother, I am able to pay a lump sum towards my principal. I was thinking of paying 30-50k to bring the payment down as well,but I understand that a $50k payment won’t make much difference in my monthly payment.
My goal are to reduce the principal,pay off loan faster and lower the monthly payment.
I am currently in an Adjustable Loan(4.25% and keeps increasing),but was planning to refinance into a fixed rate. Then I heard about Recasting.
Should I just forget about recasting and make the lump payment and then refinance the balance for a fixed rate
Amie says
Thanks for sharing this. I was totally unaware this was an option. There was a time when my husband and I were so tight that I needed smaller payments just so we could pay our bills… my son had some medical issues and very expensive medication and treatment, I had a baby, and my student loans had come out of deferment. I opted for a graduated repayment plan. I knew it wasn’t going to save me the most over time, but it did give me the breathing room I needed. A few years later, my son’s pricey medication’s patent expired so we can buy generic, I got a job closer to home and save a lot on the cost of commuting, I learned a lot about how to better manage the money I do have, I have paid off some other debts, my income increased enough to cover inflation, and my husband just got a promotion and will soon get a 38% pay increase. I still want to pay off a few more things, but I may revisit this loan soon.
[email protected] says
You’re welcome! So glad to hear things are looking up and congrats on your husband’s promotion! 🙂
Stacy Hanno says
It seems very redundant to pay the $5000 plus the $250 fee to only reduce the mortgage payment monthly by $46.
We pay extra on our principle when we can and just deal with the monthly payment that we have.
We are with Wells Fargo (not a very pleasant company if you ask me) but with a new job in my near future, I will hope to add $200-$300 additional to our principle each month and hope to be done with this company in less than 10 years.
Ann K. says
If you make an additional principle payment every month of 1/12 of your monthly mortgage payment, your loan will be paid off about 7 years early.
Shelby says
At $46 a month it will take about 10 years to recoup the fee. You would be better off putting the fee toward the principle and saving on the interest over that period.
Laura at TenThingsFarm says
At the $46 a month reduction in payment, the $250 fee would be taken care of in just over five months. The fee is because they are re-amortizing the loan with the lower principle. If you needed a lower payment for some reason, this could make sense, but if you are simply trying to pay it off early, then it would make more sense to apply the entire amount (the $5K and the $250) to principal and just let things roll from there.
Re-amortizing might actually cost more interest in the long run than knocking down the principle would (because the early payments on an amortization scale are very little principle and a lot of interest, but on an ‘older’ loan, more may be going to principle), but if you really need a lower required payment each month, there are cases where it might still be the better option.
Amy B says
We did a recast and then completely paid off the loan within 2 years. We had a jumbo loan and it would have allowed us to refinance. The refinancing fees were much higher than the recast fee and it did significantly reduce our payment. Paying extra principal doesn’t do that. The recast actually recasts the loan amount including the principal owed. We had been paying extra but the payment stayed the same. When we recast the mortgage, our payment dropped and if we paid extra, it went to that new lower principal. It is a little confusing and mortgage agents we talked to hadn’t heard of the option. We had Wells Fargo but had to go through a mortgage office not our branch bank. Pretty simple paperwork. Hard credit check was required but no appraisal.
[email protected] says
Glad to hear that recasting worked for you, too!! 🙂
Colette says
We have done this monthly on our mortgage and there was never a fee involved. I wrote a check for the mortgage and a second check for the Additional to the Principal. Even just making one additional payment per year (onto your prinicpal) on your account cuts down the loan time. The latter was suggested to us by the Title agency when we closed our home loan.
Happy Healthy and Wealthy Girl says
I don’t understand why you have to pay this fee. I usually just add extra amount. I did it with my old mortgage, where I would just make a note to apply additional amount to principal and now with my new mortgage, which I pay online I just add extra principal into “additional principal” box. No fees.
Chris says
I don’t understand the fee paying either. Paying a one time (or more) lump sum to your principal only should never involve a fee. You don’t need to refinance either to do this. I’m offered by my mortgage company (Wells Fargo) quarterly to do this, and can also do it whenever I want. Smart to make the payment, but I disagree with having paid the fee. The fee could’ve been another lump sum payment against the principal!
Sherri says
I, too, have paid extra toward principal without ever paying a fee. But the difference here is that Stephanie wanted to change the monthly payment amount as a result of that extra payment. When I paid extra, the amount I owed next month was still the same. This would work well for someone who, for whatever reason, needed a lower mortgage payment, without the higher costs of refinancing.
Chris says
RE: The fee. The advantage to the fee would be if you knew something was going to happen in the future and are able to pay ahead now, such as a mother staying home and your family income would be much less. You would not be “forced” to make the larger payment. We did pay our house off early and we did not pay a fee, but I can see where this would be handy in a few cases.
Janell says
We refinanced our house a few years ago for a 10 year loan but pay double to make it a 5 year loan. So we pay extra each month on the principle. I would like paying the fee.
Janell says
Sorry, I wouldn’t like paying the fee.
Whitney says
Depending on what your mortgage company allows, it can be more than worth the fee. Our mortgage is through a cooperative that allows you to change your loan product as often as every 12 months for a fee of $350 (and no additional money down.) We’ve done this twice now to take advantage of rate changes. For example, our original mortgage was a 30-year at 4.9%. When rates dropped we paid $350 to refinance it to 4%, which paid for itself in less than a year. When rates dropped again we switched to a 10 year mortgage at 3.3%, which I think paid for itself in 6 months.
You can always put extra money on your principal, but with rates as low as they are, it often makes more sense to put extra money in investments that pay more than your current mortgage interest rate. The lower payment can also mean more wiggle room each month, or simply more money to put in other investments.
Susan in St. Louis says
Yes, we are currently looking to buy our next house and our loan officer told us we could do this after our present (paid-for) house sells. He said it’s an easy way to lower payments without having to refinance.
So glad it worked for you!
[email protected] says
My parents did the same as you after moving to a new house and selling the old (paid-for) house. Good luck with selling the house!!! 🙂
JD says
Would you please state which bank allowed this. We are with Wells Fargo and I have never heard of this.
Joe CPA says
“A recast is when a customer wants to apply an additional sum of money to substantially reduce the unpaid principal balance of their loan and lower the monthly payment”
When you make your mortgage payment you have the opportunity to also make a ‘principal only’ payment. If you wanted to reduce your principal balance (which is a great idea!) you should avoid the fee by making additional ‘principal only’ payments. You would be better off applying the $500 to the principal instead of paying a fee.
JD says
Thank you Joe, we are currently adding approx. $600 additional to the principal per month and think we will stick with our current plan. Our home should pay off in about 7 years barring anything extreme.