While most of us have heard of a loan refinance, many have not heard of a loan recast. What is it? Simply put, if you have a considerable amount of principle to put down on your home after you’ve already purchased it, you can have your mortgage lender recast, or re-adjust, your monthly payment based on the amount you put down. Keep in mind that not every lender offers this, but many do.
What’s the difference between this and a refinance? When your refinancing your home, your taking on new mortgage terms and a new interest rate. It’s as if your purchasing a home all over again and qualifying for a new loan. People tend to refinance because they have a higher interest rate or they have paid down their mortgage to the point that a refinance will save them on a monthly payment. Many times it is a combination of both.
However, if you already have a low interest rate and loan terms that you are happy with, you may hesitate to refinance your home. But say you came into a lump sum of money, perhaps due to an inheritance, business transaction or other reason. And you are looking to lower your mortgage payment. A loan recast will allow you to put additional money down towards the principle and keep your loan terms the same. Your mortgage lender will re-adjust your payment based on your new loan amount yet keep the term, interest rate and other provisions of your loan in tact. Even better, you do not have to qualify for a new loan and the cost to do this is fairly minimal. You will then save considerable interest for the remainder of your loan term and enjoy a lower mortgage payment.
On the contrary, if you make a lump sum payment on your mortgage without doing anything else, even though the principle balance will lower, your payment will remain the same.
Of course, be sure to talk to your mortgage lender about this to get all of the details and the availability of it. Saving money is key when it comes to your home. Perhaps this is one avenue that may work for you.
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Adrian Frankfurter is a marketing director and licensed property manager for over 10 years with Nicklin Property Management.