Mortgage Daily

Published On: December 23, 2022

Can My Home Payment Be Reduced Without Refinancing?

So, you are stuck with a large mortgage payment each month. But you would prefer to refrain from refinance and incur thousands of dollars in closing expenses.

How may a monthly mortgage payment be reduced without refinancing?

A mortgage refinance may be a possible alternative.

Recasting allows you to minimize your monthly payment, and the lender fees are often only a few hundred dollars.

The trap? To immediately reduce your mortgage balance, you’ll need a substantial chunk of cash available for payment. Here is how mortgage refinancing works.

Recasting a Mortgage Explained

Recasting your mortgage is a strategy to reduce your monthly mortgage payment. It entails making a one-time, lump-sum payment toward the loan’s principal. Your lender then modifies your amortization schedule. This resets your monthly payments without modifying your prior loan’s conditions or interest rate.

Recasting a mortgage is also known as “re-amortization.”

Your lump sum payment reduces the principle balance, resulting in slightly reduced monthly payments. Additionally, you pay less interest over the life of your loan.

Mortgage Recast Rules

Recasting a mortgage might be less expensive and simpler than refinancing. However, there are still regulations and taxes connected with mortgage refinancing. These terms vary by lender. For instance:

  • The lender may charge a few hundred dollars for this service.
  • Before recasting, you may be required to make a particular number of consecutive monthly payments at your current payment level.
  • Before recasting, you could be required to pay a minimum amount of principle.

In addition, the process of recasting might take many weeks to complete. And loans with variable interest rates, interest-only payments, and other terms may not qualify for recasting.

Why Mortgage Refinancing Is Beneficial

Examining the figures soon reveals that recasting is profitable.

For instance, your original loan may look like this:

Currently Outstanding Mortgage Amount and Payments

  • Balance: $300,000
  • Rate of interest: 4%
  • Monthly cost: $1,430
  • $215,600 in total interest throughout the life of the loan

Imagine having an additional $40,000 in savings. You apply it to your principal through a recast and pay your lender a recast charge of $200.

Your re-amortized loan would resemble the following:

Recasting a Mortgage Results in a New Balance and Payment Schedule

  • Balance: $260,000
  • Rate of interest: 4%
  • Monthly cost: $1,240
    • $190 monthly savings
  • $187,050 in total interest throughout the life of the loan
    • Interest savings: $28,550

Your mortgage’s interest rate, length, lender, and payment method have not changed.

However, your monthly mortgage payment decreased dramatically. And much less of your hard-earned money will have been spent on interest in the end.

When to Consider a Recast

Joseph Polakovic owns and runs Castle West Financial as its CEO. According to him, many debtors are suitable candidates for recasting.

“This method makes sense for people who wish to retain some liquidity, maintain their existing low-interest rate, and reduce their monthly payment requirement,” he explains.

“These debtors are probably cautious investors,” Polakovic explains.

“Because their assets are not yielding as much as their mortgage’s interest rate, they have chosen to reduce their monthly payment and responsibility without jeopardizing their liquidity.”

Leslie Shull is a real estate assistant professor at Sacramento City College. She asserts that recasting a mortgage is a wise strategy for everyone.

“In my experience, those who opted for a recast had lately received a big inheritance. Or they were preparing for retirement within the next five to ten years by paying down their house,” argues Shull.

“Their interest rate was superior to the present rate. So refinancing needed to make more sense. By paying down the loan’s principle, these borrowers can preserve their excellent rate and have a reduced payment.”

The Downsides to Recasting

According to Chane Steiner, CEO of Crediful and finance expert, recasting has disadvantages for some.

If your current interest rate is high, it will remain the same.

Additionally, not all lenders provide refinancing. And you may not qualify, depending on your lender’s criteria.

“Be certain that your lender is willing to do so. According to Steiner, banks are more likely to, whereas some government loans are less likely to.

No Credit or Income Re-Check

Fortunately, you can provide evidence of income or verify your credit score, according to Steiner.

You’ve already been accepted for the loan; by paying extra now, you’re simply negotiating new payback conditions.

Refinancing and Additional Payments: Substitutes for a Mortgage Recast

Recasting is one of many techniques to reduce your payment or invest your surplus cash. Consider a mortgage refinance instead.

“Refinancing may provide a better bargain if you can reduce your interest rate,” recommends Steiner

Refinancing your mortgage might reduce your monthly payment, but at the risk of extending your loan and paying more altogether.

However, refinancing requires higher costs, a credit check, and paperwork.

Consider making expedited mortgage payments, sometimes referred to as prepaying your mortgage.

This entails making additional principal payments in any amount and at any time.

Similar to a mortgage refinance, this action reduces the total interest paid over the life of the loan. And you are not required to make a substantial upfront deposit. The disadvantage is that your payment stays the same.

Consider investing the lump cash as an alternative.

You may receive a greater interest rate on stocks, bonds, and other instruments.

Your rate of return is not guaranteed; therefore, you might lose money if you invest.

Could You Cut Your Mortgage Payments?

If you have a substantial amount of cash saved, you may restructure your mortgage to reduce your monthly payments.

Consult your existing lender to determine whether recasting is an option.

If you lack a substantial amount of liquid funds, consider exploring refinancing.

The closing expenses are still required for refinancing, but they can be financed into the loan amount.

Depending on your current interest rate, decreasing your interest rate might have an even greater impact on your long-term costs than recasting.

 

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