When Does It Make Sense to Re-amortize a Mortgage?

posted in: Mortgages

In 2016, United States homeowners spent an average of $60,400 renovating their homes.

If you have a big chunk of cash and you want to make a dent somewhere, you might benefit fromdeciding to re-amortize your home.

Typically, you need to put down at least $5,000 to re-amortize your home, but every lender has different policies. Plus, most lenders charge an administration fee, but it is not usually more than $150.

Re-amortization can help you pay less interest because it recalculates your original payment terms at a lower borrowed amount because you pay off a huge portion. Even though your interest rate stays the same, your monthly payments are significantly lower because you have paid off a big amount of that principal interest.

Whether or not it is the right choice for you and your home depends on your circumstances.

Keep reading to learn when it makes sense to re-amortize a mortgage!

What Does It Mean When You Re-amortize Your Mortgage?

When you re-amortize your loan, it is called mortgage recasting. It is less common than both modifying an existing loan or refinancing a home or a loan.

When a homeowner decides to refinance their loan, a new mortgage plan replaces the old one. Depending on credit history, it can end up costing you a lot more. One of the many benefits of re-amortizing your loan is that no credit check is required.

When you recast your loan, you are not creating a new mortgage, but instead, you are simply paying off a portion of the principal balance and recalculating monthly payments with the same original interest rate.

Now that we have gone over what re-amortization means, let’s take a look at why someone might decide to do it.

If You Buy a New Home Before You Sell the Old One

If you are one of those lucky people who has been smart enough about money that they can buy a new home before selling an old one, then re-amortization may be for you.

Once the sale of your old home is completed, the chances are that you will have a good amount of cash. Many people who find themselves in this position make the decision to look at mortgage companies in NJ so that they can re-amortize their homes.

If you choose to do so, you will be able to pay off a portion of your principal balance on your new house. As a result, your monthly payments will be lower than they were before, but you will not be paying a higher interest rate.

This option is a great way to pay less over time and rest easy knowing that your new home is that much closer to being paid off.

Any other life situation that arises in which someone might find themselves with a little or a lot of extra money might warrant the decision to re-amortize.

What Are the Benefits?

Re-amortizing lowers your monthly payments. What that does is make your housing costs, and any other monthly costs, more affordable.

You could pay the same monthly sum towards your principal balance without re-amortizing, but in that situation, your monthly payments will stay the same until your loan is paid off.

You do not need a credit check if you’re thinking about recasting a loan. You may need a history of payments that have been made on time, but you will save more money than if you refinanced, unless you may be eligible for a lower interest rate.

When you refinance, you run the risk of a different interest rate and paying closing costs all over again.

If you decide to re-amortize your house loan, you will also raise your FICO score as you lower your debt ratio.

Some Things to Note

Keep in mind that some lenders do not offer customers the ability to recast a loan. Furthermore, they are not required to offer it either, unless otherwise noted in prior paperwork.

Some lenders who do offer recasting services will charge a fee in the process.

Many lenders will offer re-amortization on a case by case basis. So while they will not ask for a credit check, they may require things like a solid history of on-time payments before they will qualify you for the chance.

What Are the Potential Negatives?

There are not too many, but if you do decide to recast your loan, make sure that you would not be eligible for a better interest rate.

For example, if when you first bought your home your credit was not what it is now, refinancing might be a better option as it could bring your interest rate down.

With re-amortization, you will not pay your home off faster, but you will have smaller monthly payments.

If you use a large cash sum to re-amortize, make sure that you are not taking away from anything you might need it for in the near future. Opting to re-amortize ties your cash up in equity, so make sure that you have enough cash in the bank before you put it all up for re-amortization.

It May Be in Your Best Interest to Reamortize

If you have a nice sum of cash, and you want to improve your monthly cash flow while paying off a significant portion of your principal debt, then it may be a great choice for your to re-amortize your home loan.

Not only will your monthly payments be lower, but your interest rate will stay the same, and your FICO score will inevitably increase.

Plus, you will be that much closer to completely owning your home. Check with your bank before, because not all lenders offer the option to re-amortize.

If you want to ask us any questions or to get a quote and see how we can help today, you can do so here!

7th Level Mortgage is a leading one-stop mortgage company providing deeply informed, custom-tailored assistance with every phase of each mortgage transaction. If you are searching for a home loan in New Jersey, Pennsylvania, Virginia, Delaware, Maryland, New York, or Florida, please contact us today so that we can determine the best Mortgage Lender to place your loan with and get you the best possible rate and program.