Refinance vs Recast (loan, interest rate, credit score, rate)

[TexasTony]

Experts,

I need advice on Mortgage recasting. I am interesting in making a lump sum payment which reduces my mortgage term by 15 yrs. The messed up part is that it is not changing my monthly payment. I am bit lost now since I know they are right but shouldn't your monthly payment reduce if you make 30-40% of your principal amount?

I don't want to refinance because I am not eligible yet and its too early. Plus I don't want to do go through the paperwork. I cannot payoff yet but need to explore other options.

Can someone explain if recast is a good option pros vs cons or should I stick with just reducing the payment term and the monthly payment remains same. Thanks

[TimtheGuy]

Not really any drawbacks to recasting if you want to lower the payment.

[ncole1]

Originally Posted by TexasTony

Experts,

I need advice on Mortgage recasting. I am interesting in making a lump sum payment which reduces my mortgage term by 15 yrs. The messed up part is that it is not changing my monthly payment. I am bit lost now since I know they are right but shouldn't your monthly payment reduce if you make 30-40% of your principal amount?

I don't want to refinance because I am not eligible yet and its too early. Plus I don't want to do go through the paperwork. I cannot payoff yet but need to explore other options.

Can someone explain if recast is a good option pros vs cons or should I stick with just reducing the payment term and the monthly payment remains same. Thanks

If you do not recast, you will shorten the loan, but not lower the monthly payment.

If you do recast, you will lower the monthly payment, but not shorten the loan.

If you want to shorten the loan AND reduce the monthly payment, you can split your prepayment money into two "piles", pay the loan down some, recast, and then pay it down some more.

[TexasTony]

Originally Posted by ncole1

If you do not recast, you will shorten the loan, but not lower the monthly payment.

If you do recast, you will lower the monthly payment, but not shorten the loan.

If you want to shorten the loan AND reduce the monthly payment, you can split your prepayment money into two "piles", pay the loan down some, recast, and then pay it down some more.

thanks good suggestion

[Modification Specialist]

.

The definition of "Recasting" is scheduled changes to a loan. Example when the interest rate changes from a fixed to an adjustable rate. Another example is the recasting point with Option Arms. If you are looking to pay extra to principle, it is called "Buying or Pay Down". Sending extra reduces term, it also cuts to amount of interest charged, called reducing the Net Effective Rate.

OP does not mention balance, existing interest rate, or how long they have been in current loan? Noting more interest is charged the first five years on mortgages. Past that point less interest and more principle is paid with each payment. What OP needs to consider -

• If I was in OP's shoes looking to buy down principle (assuming current loan is a 30 year term), would recommend refinancing to a 20 year with a lower interest rate. A smaller payment that is more manageable verse a higher payment on a 15 year mortgage.

• What the savings are if they refinanced into a shorter term, by cutting off years (payments).

• How much they could save with a lower interest rate.

• Talking with existing lender about an in-house refi to a shorter term. Refinancing with existing lender saves on closing costs.

• Sending more than the agreed upon payment continually gets reported as OP being more reasonable. OP is fueling score score to go high.

• Also noting an extra payment per year on a 20 year loan, can reduce the term to around 16 years.

• Making a one time lump sum payment basically does nothing to your credit score.

Good Luck

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