What is a Mortgage Re-Cast? All you need to know!!
A Mortgage Recast allows a borrower to make a large principal payment to his/her mortgage and have that payment be applied solely to their principal balance. Typically, a lender will consider “large” anything over about $10,000. Once this large principal reduction is applied to your mortgage the payments are then “re-cast” at the lower principal balance and your principal and interest payment is reduced based on the new lower balance. This WILL NOT change your interest rate or your term – it simply gives you the benefit of the lower payment because your principal loan balance has been reduced.
The cost of a Re-cast is typically about $250.00 and can be done anytime over the life of the loan.
This is super beneficial when your buyer wants to purchase a home before selling his/her current residence, knowing when the other home sells they can take the proceeds, apply them to the new mortgage and re-cast the new mortgage and reduce those payments. Often, when this happens the buyer is not clear on just how much money they will actually walk away from the closing with, so it gives them time to close, pay off debts, buy furniture, etc – then see what is left that they want to apply to the principal on the new mortgage.
This is also very beneficial for those bonus based or heavily commissioned people who receive large lump sums of income throughout the year.
Before a mortgage re-cast can be requested, the borrower’s loan needs to be set up with their new loan servicer and the first payment made prior to being able to execute a re-cast. There are a few lenders/servicers who may limit the amount of the re-cast at any one time or for a period of time. Check with your lender for more details.
Please reach out to Glenda, Paul or Alex with Summit Funding Advisors for any questions you might have! We’re happy to help!
