What is recasting a mortgage?

Mortgage recasting is when you have enough funds to make a lump sum payment to reduce your monthly mortgage payments. After making the larger payment, you then make much smaller monthly payments going forward.

This does not change your loan term but reduces the interest payments over the loan term (although it doesn’t change it immediately). 

You can recast some types of loans — conventional loans, high balance loans, and jumbo loans — but not Federal Housing Administration (FHA) loans and the U.S. Department of Veterans Affairs (VA) loans. 

If you’re considering recasting a loan, contact your lender and check your eligibility for recasting. Not all offer recasting. If you qualify, begin saving to make the extra payment. 

Lenders may have a minimum lump sum which could be typically between $5,000-$10,000, but it may also be a percentage of your mortgage balance (typically 10%). Think about whether and how much you can save based on this information. 

You’ll need to then submit a formal letter requesting a recast from your lender. There may be a fee of up to $500 for recasting. But this is lower than what you would pay to refinance your loan. After approval, you can make your lump sum payment. After this, your monthly mortgage payments will reduce accordingly for the term of your loan.