Hoping to lower your monthly home loan payment? Borrowers in northern Utah can achieve that goal with a mortgage recast.
Essentially, a recast is a recalculation of the monthly payments for a home loan based on the remaining term and outstanding balance. Taking this step can be a smart move if plan to pay toward your mortgage ahead of schedule, as recasting helps many people in the same situation reduce their monthly expenses. Here, the Intercap Lending team explains.
How a Mortgage Recast Works
To recast your mortgage, you’ll need to knock down the principal with a sizable payment. The minimum varies by lender, but $5,000 or $10,000 wouldn’t be uncommon – and it could be as much as 20 percent of your home loan balance.
Once you make the lump-sum payment, you can ask your lender to recast or recalculate your remaining monthly payments based on the lower principal balance. The amount due should drop, and because you owe less, you can expect to pay less interest over the life of your home loan.
When to Consider a Mortgage Recast
Recasting can be an excellent option for northern Utah homeowners who want lower monthly payments, but don’t want to change the terms of their mortgage. Some scenarios where a recast might make sense include:
- You receive a large windfall. If you get a bonus at work or inherit some money, use the cash to reduce the amount you owe and you can reduce your monthly home loan payments by recasting your mortgage.
- You’re selling one home to buy another. If the sale doesn’t close before you sign the purchase agreement for your new home, making a lump-sum payment when you get the funds makes recasting an option.
- Mortgage rates have increased. If you were thinking about refinancing to lower your loan payments, a higher mortgage rate means that’s impractical – but recasting could lead to the desired outcome.
How Recasting Compares to Refinancing
Reduced home loan payments could be yours through recasting or refinancing.
How do the two differ? With a mortgage recast, you’ll make a large, lump-sum payment. You’ll keep your existing lender, and other than the lower principal and your lower monthly payment, most details of your loan will remain the same.
With refinancing, you’ll be replacing your current mortgage with a different one. You’ll likely have a different lender, and along with reduced payments, you may have a lower interest rate or different loan term.
Which makes sense for you? That depends on your financial situation, as neither mortgage recasting nor refinancing is the right choice for every northern Utah borrower. For expert advice, turn to the experienced mortgage lenders at Intercap Lending – our friendly and knowledgeable team is always happy to help. If you’d like to lower your monthly mortgage payments and want more information on recasting and refinancing, contact our office in Orem, Utah, today.