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Good points from many here. I wanted to point at future liquidity needs like unexpected payments for health care, car accident etc. Make sure you have enough in emergency funds etc. Once it's in the mortgage it's gone and you would have to take out an expensive HELOC.
I am facepalming continuously. I cant believe i had never heard about what a mortgage recast is, but i just called citi and they can do this, no problem, and they didnt mention any fees. They can do it twice per year! Thank you city-data!
FYI, that's pretty unusual. I had to pay a $250 fee for mine. If it's free. do it as often as you can.
All a recast does is reduce your monthly obligation. If you keep paying as if the recast never happened, it never happened. There is absolutely no reason to not recast every day in theory other than the fact that it usually costs money.
If you can recast for free? Go for it.
That said, you should always try to pay off your mortgage sooner if it makes financial sense. Don't let a lower monthly payment fool you with regards to the cost of interest.
FYI, that's pretty unusual. I had to pay a $250 fee for mine. If it's free. do it as often as you can.
All a recast does is reduce your monthly obligation. If you keep paying as if the recast never happened, it never happened. There is absolutely no reason to not recast every day in theory other than the fact that it usually costs money.
If you can recast for free? Go for it.
That said, you should always try to pay off your mortgage sooner if it makes financial sense. Don't let a lower monthly payment fool you with regards to the cost of interest.
^^^^This.
A recast gives the option, not the obligation, to pay less each month.
Well but wit a recast you can 1- reduce the principal and reduce the payments...
2- minimize total interest paid
3- pay more towards principal every month bc monthly payment is lower.
Well but wit a recast you can 1- reduce the principal and reduce the payments...
2- minimize total interest paid
3- pay more towards principal every month bc monthly payment is lower.
You don't recast to pay more towards principal. You recast for flexibility - if something happens (illness, disability, job loss, etc.) and you are in a stretch, you can pay less each month without fear of losing the roof over your head.
Well, people may recast for different reasons. Thie idea that "you dont recast to pay more to principal..." Why not? You actually reduce total principal... AND you reduce payments so you make it easier in your monthly budget and easier to make advances to principal down the road.
Well, people may recast for different reasons. Thie idea that "you dont recast to pay more to principal..." Why not? You actually reduce total principal... AND you reduce payments so you make it easier in your monthly budget and easier to make advances to principal down the road.
Easy: Recasting doesn't change your interest expense initially (compared to just paying it down). If you pay $x each month, your principal payment is the same whether you've recast it or just paid it down. It may be more than the required payment by a larger amount, but that required payment included a smaller principal payment than would have been the case without the recast. The end result is that for any given monthly amount, the recast does NOT increase the amount going to principal more than simply paying it down. It just does not work that way.
You don't recast to pay more towards principal. You recast for flexibility - if something happens (illness, disability, job loss, etc.) and you are in a stretch, you can pay less each month without fear of losing the roof over your head.
Alternatively, one could just not use their ER fund and have much more flexibility and not be trying to re-borrow for liquidity on credit cards if said something were to happen.
Alternatively, one could just not use their ER fund and have much more flexibility and not be trying to re-borrow for liquidity on credit cards if said something were to happen.
Depends on the kind of risk we want to hedge against. The traditional EF is good for managing short-term shocks such as a job loss. The recasting would be more suited for a long-term shock such as a divorce cutting HH income permanently by 50%, or a job getting outsourced and having to irreversibly take a new job that pays much less. Really one needs both the EF and the option to pay less, because they mitigate different types of risk. An EF alone will get exhausted eventually in a cashflow negative situation.
And while we are at it, there is one type of risk the EF is totally unworkable for - and that is the risk of a long-term very low income. Many of the entitlement programs exempt home equity from asset limits. Whatever EF you have will be basically turned over to the government or spent down before you can get anything but if you had paid down (and recast) the mortgage you'd be fine, because home equity is exempt.
So one needs a comprehensive strategy, not simply one or the other.
Well, people may recast for different reasons. Thie idea that "you dont recast to pay more to principal..." Why not? You actually reduce total principal... AND you reduce payments so you make it easier in your monthly budget and easier to make advances to principal down the road.
As a fact, recasting reduces the monthly payment by reducing the amount of principal you owe each month.
If I take $100k and put it towards my mortgage, I will pay less in interest/more in principal each month. That's assuming there is no recast done at all. Lowering the oustanding balance results in less interest being generated per month, so more principal is paid with each mortgage check.
If I recast my mortgage after applying the $100k payment, I can reduce my monthly payment. I will not have any impact at all on the amount of interest being generated though. All I'm doing is reducing how much principal I have to pay each month.
That's why ncole is correct. Best case scenario with regards to principle payment is you keep the exact same mortgage payment you had prior to the recast, in which case you haven't actually accomplished anything via your recast. Interest is the same, Principle is the same, payment is the same. Any monthly payment reduction comes at the cost of principle payment, never interest.
Put another way, how does the fact that you are now expected to pay $50 towards principle instead of the original $100 make it easier to pay $100? It actually makes it easier to pay less, which is why you don't recast to pay more principle. You recast to reduce the amount of principle you pay each month.
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