Recast

Before you rely on it

What to check

Ask the servicer whether they offer it, what lump sum it requires, and what it charges.

The common error

Where people go wrong with recast

Assuming a large extra payment automatically lowers the monthly amount. Prepaying shortens the term and leaves the payment alone; only a recast moves the payment, and it usually has to be requested.

Worked through

Recast in plain numbers

A homeowner owes $300,000 at 6% with 25 years left, so the payment is about $1,933. They receive a $50,000 windfall and make it as a lump-sum payment; a recast re-amortizes the remaining $250,000 over the same 25 years at the same 6%; the new payment is about $1,611, a drop of roughly $322 a month. The rate and the payoff date did not change. Compare it with putting the $50,000 toward principal without recasting: the payment would stay at $1,933, and the loan would be repaid years sooner. Recasting suits someone who wants lower monthly costs. Not recasting suits someone who wants to finish faster.

Easily confused

Recast and its neighbours

A recast is not a refinance. A refinance replaces the loan with a new one, with a new rate, closing costs and a fresh qualification. A recast keeps the same loan and only recalculates the payment after a large principal reduction, usually for a small fee; it also differs from making extra payments without recasting, where the payment stays the same and the term shortens. Not every loan allows a recast. Government-backed loans may not, and lenders set minimum lump sums; ask whether your servicer offers it and what the conditions are.

In real decisions

Where recast turns up

People recast after selling a previous home and using the proceeds, after inheritances or bonuses, or when they want to lower payments without giving up a low rate; it is common when someone buys before selling and later applies the sale proceeds; retirees use it to reduce fixed costs. A calculator shows the new payment and the interest saved. Comparing it with the other choices, such as investing the money or paying down higher-rate debt, shows whether it is the best use of the cash.

Know the edges

Where recast stops being reliable

The interest saved is smaller than from a shorter term; a recast does not change the rate, so it is unattractive if you could refinance to a lower one. Fees and minimums apply. You lose liquidity because the money is now in the house. Confirm eligibility and costs with your servicer, and check that the recast does not conflict with other loan terms.

Quick answers

What people ask about recast

How much does a recast cost? Servicers often charge a modest fee, in the low hundreds of dollars, and require a minimum lump sum. Ask for the fee schedule.

Will a recast change my interest rate? No. The rate and the maturity date stay the same. Only the monthly payment is recalculated.