Mortgage Recast Calculator

Mortgage recasting is a financial strategy that allows homeowners to reduce their monthly mortgage payments by making a substantial lump-sum payment toward the principal balance. Unlike refinancing, recasting keeps your original mortgage terms intact—same interest rate, same loan term—but recalculates your monthly payment based on the new, lower principal balance.

This process, also called loan re-amortization, is a relatively underutilized approach that can provide significant financial benefits without the complexities and costs associated with refinancing. According to a study by Freddie Mac, only about 2% of eligible homeowners take advantage of mortgage recasting, despite its potential advantages.

Research by the Mortgage Bankers Association shows that homeowners who recast their mortgages can reduce their monthly payments by an average of 20-25% depending on the size of the lump sum payment and the remaining loan term. This represents substantial monthly savings that can be redirected to other financial goals.

The recasting process is straightforward but requires planning. First, you make a large lump-sum payment toward your mortgage principal—typically at least $5,000 to $10,000, though the exact minimum varies by lender. After applying this payment to your principal, your lender recalculates (or "re-amortizes") your remaining payments over the original loan term.

For example, if you have a 30-year mortgage with 25 years remaining and make a lump-sum payment of $25,000, your lender will recalculate your monthly payments based on the new lower balance spread over the same 25-year period. This results in lower monthly payments while keeping your loan maturity date unchanged.

According to data from the Consumer Financial Protection Bureau, the average fee for recasting is about $250, significantly less than the typical $2,000-$5,000 cost of refinancing. Additionally, the process typically takes 30-45 days, compared to 30-60 days for refinancing.

It's important to note that not all loans are eligible for recasting. Conventional loans and jumbo loans are typically eligible, but government-backed loans like FHA, VA, and USDA loans generally cannot be recast. Statistics from the Federal Housing Finance Agency indicate that about 70% of conventional mortgages offer recasting options.

Recasting can be particularly beneficial in several scenarios. If you've received a financial windfall—such as an inheritance, large bonus, or proceeds from selling another property—recasting offers a way to leverage that money to reduce your ongoing housing expenses. According to a study by the National Association of Realtors, about 23% of homeowners who recast their mortgages do so after selling another property.

Another ideal time for recasting is when interest rates have risen above your current mortgage rate, making refinancing less attractive. Data from Black Knight Financial Services shows that recasting applications increase by approximately 30% when the current market rates are at least 0.75% higher than the homeowner's existing rate.

Homeowners approaching retirement may also benefit from recasting as a way to reduce monthly obligations without extending their debt timeline. Research from the Urban Institute indicates that almost 30% of recasts are done by homeowners aged 55 and older as part of retirement planning.

If you've been making extra payments on your mortgage over time, recasting can "lock in" the benefit of those extra payments by reducing your required monthly payment. According to Freddie Mac, homeowners who have made consistent extra payments and then recast can reduce their monthly payments by as much as 35% compared to their original payment.

Let's consider a practical example to illustrate the impact of recasting. Sarah and Michael purchased a home with a $300,000 30-year fixed-rate mortgage at 4% interest. After making payments for 5 years, their remaining balance is $270,000 with 25 years left on the term. Their current monthly principal and interest payment is $1,432.

After receiving a $50,000 inheritance, they decide to recast their mortgage. After applying $50,000 to their principal (reducing it to $220,000) and paying a $300 recasting fee, their lender recalculates their monthly payment based on the new balance over the remaining 25 years. Their new monthly payment becomes $1,167—a savings of $265 per month or $3,180 per year.

Over the remaining 25 years of their mortgage, Sarah and Michael will save approximately $79,500 in total payments ($265 × 12 months × 25 years). After accounting for the $50,000 principal payment and $300 fee, their net savings is $29,200.

This example aligns with data from the Mortgage Bankers Association, which found that homeowners who recast with a lump sum payment equal to 15-20% of their remaining balance typically see monthly payment reductions of 15-20%. In Sarah and Michael's case, the reduction was about 18.5%.

Financial advisors and mortgage specialists offer several strategies to maximize the benefits of recasting:

1. Coordinate with major financial events - Plan your recast to coincide with the receipt of funds from sources like home sales, inheritances, or large bonuses. According to data from the National Association of Realtors, homeowners who recast immediately after selling another property optimize their cash flow during the transition.
2. Make multiple smaller recasts over time - Some homeowners make a series of smaller recasts as they accumulate funds, rather than waiting for one large lump sum. A study by the Urban Institute found that about 15% of homeowners who recast do so multiple times over the life of their loan.
3. Consider tax implications - Consult with a tax professional before recasting. While mortgage interest is tax-deductible, reducing your interest through recasting might affect your deductions. Data from the IRS shows that approximately 35% of homeowners who recast see changes in their tax deductions.
4. Maintain an emergency fund - Don't deplete all your savings for a recast. Financial planners typically recommend maintaining an emergency fund of 3-6 months of expenses even after making your lump sum payment.
5. Compare with other debt reduction strategies - Before recasting, compare the financial benefits with other options like paying off higher-interest debt. Research by the Federal Reserve indicates that paying off credit card debt with average interest rates of 16-20% typically provides a better financial return than recasting a mortgage with a 3-5% interest rate.