A mortgage recast lets you make a lump-sum payment toward your mortgage balance and request that your mortgage lender recalculate your loan payments to reduce the amount you will pay going forward. This is an especially useful strategy if you sell your old home shortly after closing on your new home, or if you come into a large sum of money, such as with an inheritance. Below, we’ll walk you through what mortgage recasting is and how it works, how it differs from refinancing, some mortgage recast pros and cons, and alternatives to consider.
Table of Contents
Key Points
• A mortgage recast allows homeowners to make a lump-sum payment to reduce their mortgage principal and lower monthly mortgage payments.
• Recasting is a popular option for homeowners who purchase a new home before selling their old one.
• The process of recasting involves confirming eligibility with the lender, making a substantial lump-sum payment, and having your loan re-amortized.
• Recasting is typically much more affordable and faster than refinancing, as it avoids the extensive underwriting process and closing costs of a new loan.
• It’s important to consider alternatives to recasting, including refinancing for a lower interest rate or investing the lump sum for potentially higher returns.
What Is Mortgage Recasting?
Mortgage recasting is a strategy in which you make a lump-sum payment toward your mortgage principal to reduce how much you owe; you then ask your lender to re-amortize your loan so that your remaining monthly payments are smaller. Your interest rate and repayment term remain the same.
Mortgage recasts are a popular strategy for homeowners who purchase a new home before selling their old home. Once you’ve sold your old home and receive a large chunk of money, you can request a loan recast, rather than refinancing the recently established mortgage, to reduce your monthly payments.
How Recasting a Mortgage Works
Lenders that offer mortgage recasting may have a specific process to follow, but in general, here’s how to recast a mortgage:
1. Confirm eligibility: Your first step is to check with your lender to ensure that it offers mortgage recasting. If you are purchasing a new home and know you’ll want to use this option after you sell your current home, limit your loan search to lenders that allow you to recast your mortgage.
2. Make your lump-sum payment: You can likely use your mortgage company’s online platform to schedule a one-time lump-sum payment toward the principal. Work closely with your point of contact from your lender to ensure you follow their protocol for making a large payment. You’ll likely also pay a mortgage recast fee of a few hundred dollars.
3. Ask for re-amortization: Lenders that allow recasting will then calculate your remaining principal balance and number of monthly payments remaining, a process called mortgage amortization. Using your current interest rate, the lender will create a new amortization schedule with a lower monthly payment. If you were paying private mortgage insurance (PMI) and this lump-sum payment helps you achieve enough equity to eliminate PMI, make sure you ask your lender to remove the insurance charge from your loan to further reduce your payment.
4. Update your autopay: Now that you have a new monthly payment, check your automatic payment schedule to ensure you’re paying the new, lower amount.
5. Be smart with your monthly savings: Now that your monthly mortgage payment is smaller, figure out the best way to use those funds. You could make additional payments toward your loan principal to help pay off your mortgage faster, but if you have a low mortgage rate, it may be wiser to either pay down higher-interest debt (like credit cards or student loans) or invest in a diversified stock portfolio or even a high-yield savings account.
Mortgage Recast Requirements
Not every mortgage — and not every mortgage lender — allows mortgage recasting. For instance, FHA loans, VA loans, and USDA loans are ineligible for mortgage recasts; some lenders may exclude jumbo loans from mortgage recasting as well.
Here are the general requirements for a recast, but remember these may vary depending on your lender:
• You must have a loan that is eligible for recasting.
• You must be current on your mortgage payments.
• The lump-sum payment must be large enough to merit a recast and the associated fee you’ll pay. Your lender may have a minimum lump-sum payment requirement.
• You’ll likely need to pay a recasting fee of a few hundred dollars.
Always check with your mortgage lender to understand the specific recasting requirements. Again, if you know you’ll want to recast your mortgage soon after closing (pending the sale of your old home), choose a lender whose recasting process and requirements you find favorable.
Recasting vs. Refinancing a Mortgage
If you want to lower your monthly mortgage payment, you’re likely deciding between recasting and refinancing a mortgage. Though they may seem similar on the surface, the mechanics and implications are notably different.
Cost
One of the biggest differences lies between the cost of a mortgage refinance and a mortgage recast:
• Refinance: You’ll pay closing costs when refinancing a mortgage, usually between 2% and 5% but sometimes up to 6% of the new mortgage amount. On a $200,000 mortgage, this could be anywhere from $4,000 to $12,000.
• Recast: Mortgage recasting, by comparison, is much more affordable. Lenders may only charge a few hundred dollars for the service.
Interest Rates
Another key difference between refinancing and recasting a mortgage is how mortgage rates work:
• Refinance: With a mortgage refinance, you’ll get a new mortgage rate. Many people refinance solely because they want to lock in a lower interest rate that will save them money in the long run, even after the higher upfront costs of refinancing.
• Recast: When you recast, your interest rate will stay the same. This isn’t a huge deal since most borrowers recast shortly after closing; rates aren’t likely to have changed much. If you come into money from an inheritance years after you closed on your home, however, interest rates may look a lot different — and you may want to consider refinancing instead of recasting, if rates have dropped significantly.
Underwriting Process
Underwriting processes vary by lender, but in general, you can expect a faster, easier process with recasting:
• Refinance: A core part of how mortgage refinancing works is the underwriting process. A mortgage refinance is treated much like getting a mortgage on a new house, with a detailed loan application and mortgage underwriting process, and then closing costs.
• Recast: A recast is much faster and typically doesn’t require an underwriting process (or even another credit check) since you’re staying on the same loan with the same lender.
Loan Term and Monthly Payments
Refinancing a mortgage results in a completely new loan while a recast keeps you in your same loan.
• Refinance: Expect completely new loan terms (for instance, if you’re five years into a 30-year mortgage, you may start a new 30-year mortgage when you refinance). Your monthly payments will likely be lower because of a lower mortgage rate and because your payments are likely spread out over a longer loan period.
• Recast: Your loan terms don’t change, so your target payoff date remains the same. Only your monthly payment goes down, because it’s based on the new, lower balance after re-amortization.
When to Recast vs. Refinance
So how do you know if you should refinance or recast? Here’s a helpful guide:
Consider a refinance if:
• You want a lower mortgage rate.
• You want a longer repayment term.
• You want to switch to a different lender.
• You want to take out some extra money (this would be a cash-out refinance).
Consider a recast if:
• Your mortgage rate is lower than current rates, and you want to retain it.
• You have the money to make a large lump-sum payment and want to do so to lower your monthly mortgage payment.
• You want a fast process with little paperwork.
Pros and Cons of Mortgage Recasting
Mortgage recasting offers a number of benefits, but there are some drawbacks to consider as well.
Advantages
• A lower payment: You’ll reduce the amount of your monthly mortgage payment.
• Freed-up funds: Beyond the sigh of relief upon owing less each month, you’ll also benefit from the ability to use more of your income to pay down debts or invest.
• Fees: Fees are more affordable than refinancing.
• Fast process: Recasting is a simple process compared to refinancing.
• Low stress: Knowing you can recast, you can more confidently buy a new house using a lower down payment — and then make another large payment after you sell your old house.
Disdvantages
• Recasting fee: Though negligible in the grand scheme of things, it’s still something to budget for.
• No rate change: There’s no opportunity for a lower rate; this is really only a problem if your lump-sum payment is from a windfall that occurs long after you closed on your home — and only if interest rates are lower than when you closed.
• Minimums: Some lenders may have a minimum lump-sum requirement (often $10,000). Give serious thought to whether it makes more sense to pay off your mortgage or invest. It’s possible that the lump sum could serve you better if used to pay down higher-interest debt or invest in something that might deliver higher returns than your mortgage interest rate.
• Eligibility requirements: Fewer loan products are eligible for recasting than are for refinancing.
How to Recast a Mortgage
One of the main advantages of recasting a mortgage over refinancing it is that the process is quick and easy.
Contacting Your Loan Servicer
Start by getting in touch with your loan servicer to see if 1) it offers recasting, and 2) your loan is eligible. If you’re shopping for a new house now and plan to sell your old home after you’ve moved, only consider lenders and loan types that allow recasting.
While speaking with your loan servicer, ask for some details, such as:
• What is the minimum lump-sum payment required?
• How much does it cost to recast a mortgage?
• How long will it take for the new payment to go into effect?
• Are there limits to how often I can recast?
Required Documents and Process
Speak with your loan servicer to understand what documentation will be required. There likely isn’t much, since you’re not applying for a new loan; instead, you may simply need to fill out a form.
The process is straightforward, too:
• Once approved for the recast, pay the recast fee.
• Make the lump-sum payment.
• Receive the new mortgage amortization schedule.
• Set up your automatic monthly payment at the new amount.
Alternatives to Mortgage Recasting
Mortgage recasting can make a lot of sense if you sell your home, receive an inheritance, or earn a sizable bonus at work. But it’s not your only option. Here are some mortgage recasting alternatives to consider:
Mortgage Refinancing
As we’ve discussed above, mortgage refinancing is another great way to lower your mortgage payment by locking in a lower interest rate, extending your repayment term, or both. Just make sure the cost to refinance will be worth it in the long run. That is, make sure you stay in your home long enough to reach the break-even point where the cumulative monthly savings equal the money spent to refinance.
Extra Mortgage Payments
Rather than formally recasting your mortgage, you can simply make extra payments toward the principal. This reduces your balance faster, saves you interest over time, and can help you pay off your mortgage early. Plus, you can keep the lump sum of money in a high-yield savings account that you simply draw from each month to make a large payment toward the mortgage.
Loan Modification
Loan modifications are an option for homeowners facing financial hardships. If you’re struggling to make your monthly payment, speak with your loan servicer about lowering your monthly mortgage payment via a loan modification. Just keep in mind that a loan modification can have a negative impact on your credit score, although if it helps you prevent foreclosure and keeps you in your home, it may be a net positive.
Investing
If you have a low mortgage rate, your money might be better spent by investing in something that pays out a higher return than that mortgage rate. The average stock market return is about 10% a year (6% to 7% after inflation), minus any fees, expenses, and taxes. Because your mortgage rate is likely lower than this, it may make more sense to invest than to recast. However, investing is never a sure thing; you have to be prepared for years when you might lose money or experience slow growth.
Alternatively, if you have high-interest debt elsewhere, like credit cards, consider using the money to pay down those debts first. If you don’t yet have an emergency fund, that lump sum of money could also be a good place to start.
The Takeaway
A mortgage recast is a smart way to lower your monthly mortgage payment if you’ve recently come into money. This is especially popular for homeowners who sell their old home shortly after buying their new home, but recasting may also make sense if you receive an inheritance or earn a sizable bonus at work. If you’re buying a home and looking into a mortgage, ask prospective lenders about their recast policy.
Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% - 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It's online, with access to one-on-one help.
FAQ
When can you recast a mortgage?
Most servicers require that you have an existing conventional loan in good standing in order to recast. You must make the lump-sum payment upfront and pay a fee before the lender can re-amortize. Outside of that, your lender may have additional requirements regarding the timing of a mortgage recast; ask your loan servicer for specific details.
How many times can you recast a mortgage?
Theoretically, there is likely not a limit to how many times you can recast a mortgage, but this is up to the discretion of your loan servicer. Keep in mind, you’ll likely have to pay a fee each time you recast, and you’ll need to have a lump sum of cash large enough to meet any lender requirements.
How much does it cost to recast a mortgage?
Mortgage recasting fees vary by loan servicer, but in general, you should expect to pay only a few hundred dollars. Ask lenders how much recasting costs when shopping for a mortgage.
Is recasting a mortgage a good idea?
Recasting a mortgage can be a great idea if you receive a large lump sum of money and would like to reduce your monthly mortgage payment. Just make sure you consider alternative ways to use that money, like establishing an emergency fund, paying down higher-interest debts, or investing in a diversified portfolio.
Is it better to pay down the principal or recast?
Paying down the principal of your mortgage and recasting your mortgage are both smart strategies. Paying down the principal can reduce how much you spend in interest over the life of the loan and also help you pay off your loan early. Recasting the mortgage can significantly reduce your monthly payment, which frees up cash to invest or help you cover other monthly expenses more easily.
Photo credit: iStock/timnewman
SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility-criteria for more information.
SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.
*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
ÂąFHA loans are subject to unique terms and conditions established by FHA and SoFi. Ask your SoFi loan officer for details about eligibility, documentation, and other requirements. FHA loans require an Upfront Mortgage Insurance Premium (UFMIP), which may be financed or paid at closing, in addition to monthly Mortgage Insurance Premiums (MIP). Maximum loan amounts vary by county. The minimum FHA mortgage down payment is 3.5% for those who qualify financially for a primary purchase. SoFi is not affiliated with any government agency.
†Veterans, Service members, and members of the National Guard or Reserve may be eligible for a loan guaranteed by the U.S. Department of Veterans Affairs. VA loans are subject to unique terms and conditions established by VA and SoFi. Ask your SoFi loan officer for details about eligibility, documentation, and other requirements. VA loans typically require a one-time funding fee except as may be exempted by VA guidelines. The fee may be financed or paid at closing. The amount of the fee depends on the type of loan, the total amount of the loan, and, depending on loan type, prior use of VA eligibility and down payment amount. The VA funding fee is typically non-refundable. SoFi is not affiliated with any government agency.
Third Party Trademarks: Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®
SoFi Credit Cards are issued by SoFi Bank, N.A. pursuant to license by Mastercard® International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.
Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.
SoFi Checking and Savings is offered through SoFi Bank, N.A. Member FDIC. The SoFi® Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.
SOHL-Q425-056