Both recasting and refinancing can save you money on your mortgage. So what’s the difference, and how do you know which is best for you?
The Difference Between Recasting and Refinancing
When you recast, you make a large payment toward the principal of your loan, and your lender recalculates your payments. Your loan term and interest rate stay the same, but since your balance is lower, you pay less each month. In order to initiate a recast, you need to make a formal request to your lender. If you make extra payments without recasting, you will pay off your loan sooner, but your monthly obligation will not change.
With a refinance, you actually apply for a new loan to replace your current one. Unlike recasting, you may be able to get a lower interest rate, change the term of your loan, or even get a new lender.
When To Recast
You might want to recast if:
You purchased a new home before you sold your old one, and you want to use the funds from the sale to pay down your new loan.
You received a large sum of money and want to lower your monthly payment.
You want to lower your payment, and refinancing isn’t an option at that time.
If your income or credit score has gone down, or interest rates are going up, recasting might be the best course of action for you to take. Typically, you’ll need to make a minimum payment of anywhere between $250 and $5,000 to recast, but check with your lender for specifics. There may be no minimum, or it could be a percentage of your loan instead.
Not all lenders allow recasting, so contact yours to see if it’s a possibility and what the requirements are. There may be a servicing fee involved, which usually costs a few hundred dollars.
Benefits of Recasting
There are definitely some benefits to recasting.
It’s pretty simple. Since you already have the loan, there’s no application, credit check, or appraisal.
It doesn’t cost a lot. Recasting is less expensive than refinancing since there are no closing costs – just a small servicing fee.
You can keep your current interest rate. If your rate is lower than the current market rate, you probably want to keep it.
And by lowering your principal balance, you save on interest and lower your monthly payment.
When To Refinance
You might want to refinance if:
You don’t have a lump sum of cash to put toward your mortgage.
Your lender doesn’t allow recasting, but you still want to lower your payment.
You want to utilize your home’s equity and take cash out.
You want to change your loan.
If you refinance, you’ll have to pay closing costs, but you may be able to roll them into your new loan.
Benefits of Refinancing
While it’s more complicated than recasting, refinancing definitely has some great benefits.
You have the option to change your loan. By refinancing, you can get a lower interest rate, shorten or lengthen the term, change the type of loan, or get a new lender.
You can take cash out instead of putting it in. When you recast, your cash is tied up in your home’s equity. Refinancing allows you to use that equity to get cash instead.
Save Money On Your Mortgage
Whether you recast or refinance, you can save money on your home loan. If you’re still unsure which route to take, talk to your lender to determine if recasting or refinancing is the best option for you. And I’m happy to connect with you to provide more details too.