Just in the past week, I have had two clients approach me to check on interest rates and if refinancing makes sense since they now have an influx of cash from a rental property sale. For both of them, their goal was to pay down their primary home’s mortgage with the cash proceeds from their sale so that they can reduce their overall payment. Unfortunately, it did not make sense for either of them when comparing their current interest rate to where interest rates are now. So I proposed the ability for them to recast their current mortgage, which neither had heard about as an option.
So what does it mean to recast your mortgage?
Essentially, it means you pay down a chunk of your principal balance. Your interest rate and terms remain the same, but a new payment is calculated based on the new principal balance. Recasting rules and options depend on your servicer (including if they allow it, although I believe most do). In my research, typical requirements are:
- Minimum paydown of $5k (some servicers may require more)
- A fee to recast, usually a couple to few hundred dollars
- No more than one recast per year
- Must have made a minimum of two payments on the current loan
- Completion time to recast from initial request can take 45-60 days
If you have an influx of cash, whether from a home sale, stock or inheritance, and a desire for a lower monthly mortgage payment, you may want to look into recasting as an option. Contact your servicer for details, and if you would like to compare it to a refinance, I am happy to help!