**Title: Mortgage Recasting: A Smart Way to Lower Your Monthly Payments**
**Introduction**
Homeowners looking to save money on their home loans might want to consider mortgage recasting. This option can help you pay less in interest costs and lower your monthly payments without the hassle of refinancing. If you have extra cash on hand, making a lump-sum payment toward your mortgage principal can help you become debt-free sooner. Heres what you need to know about mortgage recasting before you decide to reamortize.
**What Is Mortgage Recasting?**
A mortgage recast involves making a lump-sum payment toward the principal balance of your loan. Your lender will then reamortize your mortgage with the new, lower balance. While your interest rate and loan term remain the same, your monthly payments will decrease because your principal has been reduced.
**When to Consider Mortgage Recasting**
Homeowners often recast their mortgage after selling a previous property and using the proceeds to pay down the new mortgage. Its also a good option for those who receive a large sum of money, such as an inheritance or a work bonus, and want to lower their mortgage expenses.
**How Does Mortgage Recasting Work?**
The process can vary by lender, but generally follows these steps:
1. **Make a Lump-Sum Payment:** Typically, a minimum of $10,000 is required, though this can vary. This payment goes directly toward reducing your loans principal balance.
2. **Reamortize Your Balance:** The lender adjusts your repayment schedule to reflect the new, lower balance, resulting in reduced monthly payments.
3. **Pay Servicing Fees:** Lenders often charge a servicing fee for recasting. For example, O1ne Mortgage charges $250 for this service.
**Qualifying for Mortgage Recasting**
Not all lenders offer mortgage recasting, and not all loans are eligible. Heres what you need to qualify:
1. **No Government-Backed Loans:** FHA, USDA, and VA loans are generally ineligible for recasting. Jumbo loans through O1ne Mortgage may be recast, but policies vary by lender.
2. **Meet Minimum Principal Reduction Standards:** Most lenders require a minimum lump-sum payment, usually $10,000, though it can also be a percentage of your principal.
3. **Payment History Requirements:** Some lenders require a history of on-time payments. For instance, O1ne Mortgage requires at least two consecutive on-time payments before recasting.
**Recast vs. Refinance: Which Is Better?**
Both recasting and refinancing can save you money, but they work differently. Here are the pros and cons of each:
**Recasting Your Mortgage**
*Pros:*
– **Lower Costs:** No closing costs, just a small recasting fee.
– **No Credit or Appraisal Requirements:** No need to meet credit score requirements or wait for an appraisal.
– **Keep Your Interest Rate:** Maintain your current interest rate.
– **Save on Interest and Lower Payments:** Ideal if you have a large sum to put toward your loan but are unsure about future income.
– **Direct Principal Application:** Lump-sum payments go directly to the principal.
*Cons:*
– **Lender Restrictions:** Some lenders dont allow extra payments to go toward the principal.
– **Eligibility Issues:** Government-backed loans generally dont qualify.
– **Minimum Payment Requirement:** A significant lump-sum payment is required.
– **No Term Reduction:** Your loan term remains the same.
– **Limited Equity Access:** Your cash is tied up in home equity.
**Refinancing Your Mortgage**
*Pros:*
– **Change Loan Terms:** Adjust the term, interest rate, or loan type.
– **Broad Eligibility:** Almost any loan type can be refinanced.
– **Choose a New Lender:** Switch lenders if youre unsatisfied with your current one.
*Cons:*
– **Higher Costs:** Includes origination fees, appraisal fees, and other closing costs.
– **Potentially More Interest:** You may pay more interest over the life of the loan, especially if you extend the term.
**Calculating Your Mortgage Recast**
To calculate a mortgage recast, you can use an online calculator or do it manually. Heres a simple example:
– **Current Loan:** $200,000 balance at 4.99% interest, with a monthly payment of $1,072.43.
– **Lump-Sum Payment:** $40,000, reducing the balance to $160,000.
– **New Monthly Payment:** Approximately $857.94, saving you $214.49 each month.
**FAQs About Mortgage Recasting**
– **Recast vs. Principal Payment:** Recasting involves a large payment and reamortization, while extra principal payments simply reduce the loan balance without changing monthly payments.
– **Extending Mortgage Amortization:** This can be done through refinancing or loan modification, but may incur additional costs.
– **Timing for Recasting:** Typically, you can recast after making two consecutive on-time payments.
**Conclusion**
Mortgage recasting is a straightforward way to lower your monthly payments without applying for a new loan. Its a cost-effective option if you have extra cash to put toward your principal. However, it wont change your loan term or interest rate. For more favorable terms, consider refinancing. Contact the Home Loan Experts at O1ne Mortgage to explore your options and take the next step toward financial freedom.
**Keywords:** mortgage recasting, reamortize, lower monthly payments, mortgage principal, lump-sum payment, O1ne Mortgage, refinance, home loan, mortgage savings, mortgage options
Mortgage Rates
1. Secured Overnight Financing Rate (SOFR) 2. Adjustable-rate mortgage (ARM) 3. Interest rate benchmark 4. Mortgage loan 5. Federal Reserve Bank of New York
