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Short Summary
Main recommendation: If you receive a lump sum and want a lower monthly mortgage payment, a mortgage recast, meaning a lump-sum principal payment that causes the loan to be re-amortized, is the option to consider, with a refinance as the alternative to compare. The speaker says recasting can be done directly with your servicer without a mortgage professional, and that the recast typically requires a payment of $10,000 or more.
Key Points
- A recast involves making a lump-sum principal balance payment, after which the loan is re-amortized so the monthly payment goes down.
- Recasting also increases your equity in the property because the principal balance is reduced.
- The speaker gives three scenarios: a large work bonus, selling a previous home to fund a recast on a new purchase, and an inheritance.
- The servicer, not necessarily the original lender, is the party that must approve and process the recast.
- Some servicers refuse recast payments, and the lender has no control over that during loan origination.
Details Worth Noting
- Concrete instructions:
- Confirm that you have a lump sum, generally $10,000 or more, to apply to principal.
- Find your servicer by checking the monthly mortgage statement, since that is who you pay each month. The servicer may differ from the original lender.
- Find the phone number on the back of your mortgage payment book, usually a 1-800 number.
- Call and ask for the servicing department, say you want to make a recast payment, and ask whether they allow it.
- If they allow it, ask them exactly how to make the payment, when to make it, and how to notify them in advance.
- Once confirmed, make the lump-sum principal reduction payment to the servicer, then expect the loan to re-amortize and the monthly payment to drop.
- The speaker says he gets no financial benefit from recasting and suggests it is a borrower-focused option.
- In the friend example, the new home was bought with 5 percent down before the old home sold, and sale equity was then applied to a recast on the new loan.
Bottom Line
A recast can lower your monthly payment without a new loan, but it depends on having a large enough lump sum and on your servicer allowing it, so call them before assuming it is available.
