Mortgage Recast Calculator

Save your money by using our recast calculator to optimize your mortgage payments. Calculate mortgage recasting options, loan adjustments, and more.

Plan your financial future with our precise recast mortgage calculator.

A mortgage recast is a good way to save interest and reduce your monthly mortgage payment. We’ll explain what a recast is, how it works, and how to use our recast mortgage calculator to estimate your potential savings.

What is a Mortgage Recast?

A mortgage recast refers to the process of recalculating the monthly payment on a home loan without changing the interest rate. In a recast, the lender will rework the payment schedule based on the borrower making a lump sum payment to reduce the principal balance. A mortgage recast is also known as mortgage re-amortization.

There are a few differences between a recast and a refinancing. When a borrower refinances their mortgage, they are essentially taking out a new loan to replace the existing one. This usually results in a different interest rate and loan term. Refinancing also comes with closing costs.

In contrast, a recast does not involve a new loan. The borrower retains their original loan terms such as the interest rate and length of the loan. Only the principal balance and monthly payment amount are adjusted. Many lenders allow borrowers to recast for a relatively small fee that is typically much lower than refinancing closing costs.

Recasting a mortgage reduces the borrower's monthly payment by applying a partial payment towards the principal balance. The lender then re-amortizes the remaining balance over the original term to establish a new payment. This reduces the borrower's total interest expenses compared to making regular payments without recasting.

Mortgage Recast: Pros and Cons

Pros:

• Reduced monthly payments: After recasting, your monthly mortgage payments decrease due to the lower principal balance.
• Interest savings: By lowering the principal, you'll pay less interest over the life of the loan.
• Retain favorable loan terms: Unlike refinancing, recasting keeps your original interest rate and loan term intact.
• Lower fees: Recasting typically costs less than refinancing, with minimal administrative fees.

Cons:

• Large lump sum needed: Recasting requires a significant upfront payment to reduce the principal balance.
• No rate reduction: If market interest rates have dropped, recasting doesn't allow you to take advantage of lower rates.
• Unchanging loan term: The original payoff date remains the same, so you won't pay off your mortgage any sooner.
• Limited availability: Not all lenders or loan types offer recasting as an option.
• Opportunity cost: Using a large sum for recasting means those funds aren't available for other investments or financial goals.

Mortgage Recasting vs Refinancing

Definition:

• Recasting: Making a large lump sum payment towards the principal and recalculating monthly payments based on the new balance.
• Refinancing: Replacing your existing mortgage with a new loan, often with different terms or interest rates.

Key Differences:

Aspect	Recasting	Refinancing
Process	Simple, no new loan application	Full loan application and approval
Interest Rate	Remains unchanged	Can change (potentially lower)
Loan Term	Unchanged	Can be adjusted
Fees	Low ($200-$500)	Higher (2-6% of loan amount)

When to Consider Recasting:

• You have a lump sum to invest in your mortgage.
• Your current interest rate is lower than market rates.
• You want to reduce monthly payments without extending the loan term.

When to Consider Refinancing:

• Market interest rates are significantly lower than your current rate.
• You want to change your loan terms (e.g., switch to a fixed-rate mortgage).
• You need to access home equity through cash-out refinancing.

In summary, recasting is simpler and less expensive, ideal when you have a lump sum and are satisfied with your current rate. Refinancing offers more flexibility in changing loan terms and rates but involves a more complex process and higher costs.

Understanding Mortgage Recast: A Case Study

To show how recasting can greatly cut monthly expenses, let's look at a example. John took out a 30-year, $250,000 mortgage 5 years ago at 4% interest. His original monthly payment was $1,194. You could calculate this example by mortgage calculator.

After making regular payments for 5 years, John's principal balance had been reduced to $225,679. Then he received a $50,000 cash gift from his parents. John decided to use this money to recast his mortgage.

When John made the $50,000 lump sum payment to his lender, his principal balance dropped to $175,679. The lender then re-amortized the $175,679 over the remaining 25-year term. This lowered John's monthly payment substantially to $927.

This example reveals the benefits of recasting a loan in terms of reduced monthly payment. By making a lump sum payment of $50,000, John was able to reduce his monthly costs by $267 for the remainder of his loan. Over the 25 years left, this will save tens of thousands of dollars in interest costs. Recasting in this way allowed John to immediately benefit from lower housing expenses using his unexpected cash windfall. John can use the money he saves every month to improve his life or invest it

When Should You Consider Recast?

There are a few common scenarios where recasting your mortgage can make good financial sense.

If interest rates have risen substantially since you took out your loan but your rate is still below current market rates, recasting allows you to keep your low rate while lowering payments. This protects you from rate increases without the cost of refinancing. However, if interest rates continue to fall, you might consider refinancing.

Recasting is also great choice when you have a lump sum sources of funds that are sitting idle, such as an inheritance, work bonus, or proceeds from selling another property. Putting this "extra" cash towards your mortgage via recast reduces costs instead of earning little to no return in a savings account.

For rental property investors, recasting a non-cash flowing property's mortgage can sometimes help get it into the black. The lower monthly payment frees up funds to cover maintenance and repairs.

Overall, recasting makes sense when it results in reduced monthly costs and total interest paid over the life of the loan. The primary potential advantages are lower long-term expenses and increased cash flow through a streamlined payment.

Mortgage Recast Calculation Principles

A key principle of mortgage recasting is that it reduces monthly payments and overall interest costs by paying down principal. Let's examine how the calculations work.

When a borrower makes an extra lump sum payment during a recast, it decreases their outstanding principal balance. With a lower balance remaining, the portion that goes towards interest in each payment is also lower.

Meanwhile, the recast does not change the number of payments or the amortization schedule length set by the original terms. So, as the balance decreases, the monthly interest decreases, the principal increases with each payment, and the monthly payment remains the same.

Less overall interest is paid because interest is calculated as a percentage of outstanding principal each period. The basic formulas used to re-calculate are as follows: **Basic Formula for Monthly Payment on an amortizing Loan:**

M=P×(r×(1+r)^n)/((1+r)^n-1)

Where:
-- M: Monthly payment
-- P: Principal loan amount
-- r: Monthly interest rate (annual rate / 12)
-- n: Total number of payments (loan term in years multiplied by 12)

In an re-amortizing loan:
New Monthly Payment = Monthly payment;
New Mortgage balance = Principal loan amount;
Monthly interest rate = (Interest Rate / 100) × (1/12);
Months Left on the Loan = Total number of payments(months)

For example, if a $250,000 loan at 4% after 5 years receives a $50,000 recast payment, the new balance is $175,679. Using the above formulas, a lower monthly payment amount is determined.

Understanding the Recast Calculator Results

Once the input data has been entered into an online recast calculator, it will display the estimated results of recalculating the loan terms. The primary pieces of result data include:

It is important for users to verify that the results are intuitive and accurate based on the provided inputs. If the calculated payment is not significantly lower, or interest savings appear minimal, the input values should be checked again carefully for potential mistakes. The goal of recasting is meaningfully reducing long-term costs, so results must pass basic reasonableness tests. Taking the time for multiple checks of inputs and outputs against expectations is key to properly evaluating a potential recast scenario using an online calculator tool.

FAQs

Here are some frequently asked questions regarding mortgage recast that you may find helpful:

-How do I calculate what my new payment would be without an online calculator?
You can calculate it manually using the standard amortization formulas to solve for the payment amount given the new principal balance, interest rate, and remaining term. Or you can calculate on excel, how to calculate re-amortization mortgage on excel?

-Do I need to modify my loan or get refinanced to recast?
No, recasting does not require modifying your existing loan terms or taking out a new one. You keep the original rate and term.

-How often can I recast my loan?
Most lenders allow one recast per year for a fee. But policies vary, so check with your specific mortgage servicer.

-Is the recast payment guaranteed for the life of the loan?
Yes, the payment you lock in through recast will remain consistent through maturity as long as you adhere to the original loan terms.

Hopefully these questions capture some of the practical concerns homeowners may have about the possibilities and limitations of recasting their mortgage.

**Disclaimer:** This loan calculator provides calculation results for reference purposes only and does not constitute legal or financial advice. The calculated amounts may vary based on factors such as fluctuating interest rates and individual credit ratings. Users are encouraged to verify all calculation results and consult financial experts or legal advisors when necessary. The author and the website disclaim any responsibility for losses or damages incurred as a result of using this calculator. By using this calculator, you acknowledge and agree to this disclaimer, and assume all risks associated with the use of the calculated results. Please be aware that loans involve financial risks. It is essential to consult qualified professionals before making any financial decisions to ensure your interests are protected.

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