If you’re sitting on a large sum of money—whether due to an inheritance, a bonus or just saving up—you might be wondering if you can use it to reduce your mortgage costs. One way to do this is by requesting a mortgage recast, though you should first verify that your mortgage is eligible.
For eligible mortgages, a mortgage recast (also called re-amortization) is when you make a large lump sum payment toward your loan’s principal. Then your lender recalculates your monthly payments and sets a new amortization schedule based on the new, lower balance. The lump sum payment you make is referred to as a “principal curtailment.”
Key Point: Your interest rate and loan term stay the same, but your monthly payment drops, so you will pay less interest over time.
Benefits of a Recast
If you’re eligible, recasting your mortgage offers several advantages:
- Lower monthly payments without refinancing
- No credit check or income verification required
- Keep your current interest rate
- Avoid closing costs associated with refinancing†
Is My Mortgage Eligible for Recast?
Not all loan types are eligible for a recast. Be sure to talk with your lender.
May Be Eligible:
- Conventional loans
- Fannie Mae® and Freddie Mac® loans
- Adjustable-rate mortgages (ARMs) in their repayment period
Not Eligible:
- Loans by the VA, USDA or FHA
- Most jumbo loans
- Home Equity Line of Credit (HELOC)
- Bond loans
- Interest-only loans
- Loans by the Government National Mortgage Association
Should I Recast My Mortgage?
If you’re considering this option, there are a few important factors to consider.
- Do I have Enough Funds? Generally, you need at least $10,000 or 10% of your unpaid principal balance (UPB) in order to make a principal curtailment―whichever is greater.
- Would It Be Better to Refinance? In certain situations, refinancing might actually make more sense.
- If a lower interest rate is available to you, a refinance may allow you to save more money over the long term.
- If you’re looking to shorten your loan term, you may prefer a refinance.
- Do I Need the Money for Other Expenses? If you’re holding onto a large sum of cash, take some time to think about whether there are other pressing expenses you want to cover first before using it in a mortgage recast.
- Recasting Fee: Most lenders charge a fee when you elect to recast your mortgage. Newrez charges a $250 administration fee, though this fee isn’t applicable in all states.
How Do I Start the Recasting Process?
If you’re interested in recasting your mortgage, reach out to your lender to find out if you’re eligible and submit a formal request. If your request is accepted, you can make a principal curtailment. Then continue to make regular monthly payments until your new amortization schedule begins, often 30 days after your curtailment is submitted.
Take Control of Your Mortgage
It’s a great feeling when you have the opportunity to lower your homeownership costs, whether by recasting or refinancing your mortgage. If you want to learn more and find the best option for you, don’t hesitate to reach out to a Newrez mortgage expert.
Freddie Mac® is a registered trademark of the Federal Home Loan Mortgage Corporation. Fannie Mae® is a registered trademark of the Federal National Mortgage Association. None of the above-mentioned companies are affiliated with Newrez LLC.
This is not a commitment to lend. All loan programs are subject to credit, underwriting, and property approval. Programs, rates, terms and conditions are subject to change without notice. Other restrictions apply.