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Mortgage Recasting: What It Is and How It Works
Your monthly mortgage payment is likely the largest expense in your budget. While you might have heard of refinancing to lower your interest rate, there is another way to decrease your mortgage payment without closing costs: mortgage recasting.
What is Mortgage Recasting?
Mortgage recasting is when you make a lump sum payment towards your mortgage to re-amortize the loan. The lender then decreases your monthly payments and amount of interest you need to pay over the life of the loan. The process typically comes with an administrative fee of a few hundred dollars.
Mortgage recasting is only offered by some lenders and requires you to meet a few requirements. Firstly, you must have a conventional mortgage loan with enough equity in your home. You must also have a clean payment history and a large enough lump sum - the amount varies by lender but is usually at least a few thousand dollars.
Refinancing vs. Recasting
Mortgage recasting provides a method to lower your mortgage payment without refinancing and going through a credit check, home appraisal, and income verification. However, if you have specific goals such as shortening your loan length, it might be better to refinance instead. Refinancing can provide a lower interest rate, but it comes with closing costs. Consider pre-qualifying for refinancing to estimate potential savings compared to recasting.
Before recasting, consider whether there are other ways to spend your money to get better returns first, such as building an emergency fund. If you are unsure about whether mortgage recasting is right for you, consider connecting with a financial advisor to determine the best approach for your situation.
Mortgage recasting can be a good option if you have substantial cash to put towards your home equity and your interest rate is low. It's worth exploring if it makes sense for your situation.
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Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff's alone, and have not been reviewed, approved or otherwise endorsed by any third party.
In conclusion, mortgage recasting can be an effective way to reduce monthly mortgage payments without the cost of refinancing. However, it is not offered by all lenders, requires a lump sum payment, and is only recommended for those with a substantial amount of equity in their home and a low interest rate. For new businesses, this may provide an opportunity to reduce business expenses if the business operates from a property with a mortgage. If a lump sum payment is available, recasting the mortgage can provide long-term savings for the business.
However, it is important to ensure that the lump sum payment does not compromise the business's operating cash flow or emergency fund. It is also crucial to assess the business's future funding needs and long-term strategy before committing to a large lump sum payment towards the mortgage. As with any financial decision, it is recommended to consult with a financial advisor to determine the best approach for specific business needs and goals.
Article First Published at: https://www.cnbc.com/select/what-is-mortgage-recasting-and-how-does-it-work/