Most homeowners know about refinancing, but they’re less familiar with a mortgage recast. A refinance replaces your existing loan with a new loan, often used to change loan terms, drop insurance, or lower a monthly payment. With a mortgage recast, you pay a lump sum toward your loan principal, recalculating—and typically lowering—your monthly payment.
Think of refinancing like trading in your car for a new one. You’re essentially getting rid of your current mortgage and replacing it with a brand-new loan, often with better terms or advantages. Recasting is more like upgrading your current car’s engine. You keep the same vehicle (your original mortgage) but make it run better.
Exploring both options can help you make the right choice for your situation.
Start Fresh with a Mortgage Refinance
When you refinance, you apply for an entirely new mortgage that pays off your existing one.
This process involves:
- Credit checks and income verification
- Home appraisal
- Closing costs (typically 2-5% of your loan amount)
- New interest rate and potentially new loan term
- Full underwriting process
The benefits: You might lock in a lower interest rate, change your loan term, eliminate mortgage insurance, or even pull cash out in the form of home equity.
It can be smart to refinance when:
- Interest rates are lower than when you purchased. If current rates have fallen below your existing mortgage rate, refinancing might save you thousands over the life of your loan.
- You want to change your loan term. Maybe you want to switch to a shorter mortgage term to pay off your home faster or lengthen your term to lower monthly payments.
- You need cash. A cash-out refinance lets you tap into your home’s equity for major expenses like home improvements, unexpected bills, or debt consolidation.
- Your credit has improved. Better credit could qualify you for a more competitive rate than when you first bought your home.
When refinancing, there are considerations:
- Higher upfront costs
- More time involved
- May not make sense if rates have increased
The savings: Refinancing often offers greater long-term savings if you can secure a lower rate. If not, there’s still potential to save by dropping insurance, qualifying for better terms, or shortening your loan term to pay it off sooner. Take a look at where rates may be heading.
How much could you save? Get in touch to crunch the numbers.
Refresh Your Loan with a Mortgage Recast
When you recast, you make a lump-sum payment toward your mortgage principal, and your loan officer recalculates your monthly payments.
This process involves:
- One or more lump-sum payments (typically $10,000 minimum)
- A processing fee (usually $300)
- No credit check or appraisal
- Keeping your current interest rate and loan term
The benefits: A mortgage recast is much simpler than a refinance. Your interest rate and loan term stay the same—you just pay less each month because you owe less money.
It can be smart to recast when:
- You have a great interest rate you want to keep. If you locked in a low rate a few years ago, recasting lets you keep that rate while still lowering your payments.
- You’ve come into a windfall. Whether it’s an inheritance, work bonus, or proceeds from selling another property, recasting is a simple way to put that money to work.
- You plan to move in a few years. You won’t have to stay in your home longer than you want in order to recoup the upfront costs of refinancing.
- You recently refinanced. If you just went through the refinancing process and don’t want to do it again, recasting offers an alternative way to lower your payments.
When recasting, there are considerations:
- Only conventional loans are eligible
- You need a substantial amount of cash upfront
- Your loan generally needs to be current
The savings: Recasting offers quicker relief with lower upfront costs. While you won’t change your interest rate, the monthly payment reduction can be substantial and immediate.
Which Option Is Right for You?
Both refinancing and recasting have unique benefits, depending on your financial goals and needs. Wondering which makes sense for you? Contact your Cornerstone loan officer.
Sources deemed reliable but not guaranteed. For educational purposes only. Refinancing may reduce your monthly payments but could also increase total finance charges over the life of the loan; consider all costs before deciding.