mortgage recasting

What Is Mortgage Recasting?

posted in: Mortgages

Buying a house can be one of the most significant purchases that somebody makes in their life. It is a commitment that can last as long as 30 years, so most homeowners have to prepare a long-term plan to pay that off.

The average fixed mortgage at the start of 2022 is 3.34%.

However, with 30 years being such a long time to complete the entire payment, a lot of things can change in your life. One day, you might find yourself being a lot closer to paying off your house.

This is where mortgage recasting comes in.

What is that? And how does it work? This is your mortgage recasting guide.

What Is Mortgage Recasting?

Mortgage recasting is when you ask your lender to have different monthly payments than what you originally agreed to. You are trying to decrease the amount you have to pay each month most of the time.

How you get there depends on how you acquire the funds to pay for it. Most of the time, there is a lump sum payment involved that allows you to pay for a significant part of the payment at one time.

Getting Inheritance

This can be one of the bigger reasons why someone might want to have their mortgage recast. The reason is that the person comes into unexpected money and now suddenly has the funds to take a decent amount off of the remaining mortgage.

The average inheritance is around $46,200. Considering that Americans can spend hundreds of thousands of dollars on the house, that can be a significant amount of money to put towards it.

Let’s say that you bought a house for $300,000 and paid off about $50,000 of the house before receiving the inheritance. If you got about $46,000 worth of inheritance, you could almost double the money that you already put towards the house all at once.

Then, if you decide to keep the same amount of time left on the mortgage, you would be able to pay less money per month towards it than you originally were with a mortgage recast.

Buying a New Home

Buying a new home while having your old home tends to be one of the biggest reasons why people want to have a mortgage recast. It makes sense if you think about it because not everyone can have the timing between their sale and purchase time up.

Let’s say that you had to buy a new home by the beginning of March to start a job in a new city. You are given four weeks to move, but you run into unexpected delays in selling your old home.

This means that you have to come up with a mortgage for your new home without having the profits of your old home to put towards that. So, you might start out by making a mortgage plan without that, but once your home eventually gets sold, you are likely going to have hundreds of thousands of dollars to throw towards that mortgage.

Once you secure those funds, you can try to get a mortgage recast to adjust the monthly payments to reflect that lump sum put down.

Pros of Mortgage Recasting

One of the main pros of doing this is to lower your monthly payments for a mortgage. If you put down $46,000 at once from an inheritance, that can lower it by a significant amount because you could essentially be putting down 15% of the mortgage payment.

If you combine that with the possible interest you are cutting off, you would certainly be coming out there.

Another pro of recasting is that if mortgage rates have increased since you created your mortgage, recasting will not change your original fixed rate. So, if the fixed rates went up from, say, 3.34% to 3.5%, you would still only be paying the original interest rather than the new and more expensive one.

Then, there is the credit factor for those who feel that they do not have the best credit score. When it comes to mortgage recasting, there is no credit check, so that would not be a factor for if your application for this gets approved or not.

Cons of Mortgage Recasting

Going off of the above, the fixed rates do not change. However, that does not always benefit you because there is a possibility that the mortgage rates can go down.

If the mortgage rate went down from 3.34% to 3.2%, you would still have to pay this mortgage off with the original 3.34% no matter what the monthly payment is.

Another disadvantage is the fact that you cannot use any equity from your home to apply for this mortgage recast. Considering the fact that homes are worth hundreds of thousands of dollars, this can be a setback for some that are more financially strapped that may have been relying on that as an option.

The only way to take equity out of a home is to refinance it, which would not impact the monthly mortgage payments that you are paying to a lender.

Consult a Professional

These are some of the most important things that you need to know about mortgage recasting. Most of the time, this can be a good experience for homeowners because it does save them money on their mortgage.

However, just be sure that you know what you are signing up for before the original mortgage.

Do you want to know more mortgage recasting tips? Contact us today to consult a professional and come up with a plan to get started with your mortgage recast.

7th Level Mortgage is a leading one-stop mortgage company providing deeply informed, custom-tailored assistance with each mortgage transaction phase. If you are searching for a home loan in New Jersey, Pennsylvania, 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.