Recasting or Re-amortizing Your Loan

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The technical definition is:

Recasting
: An adjustment to the current mortgage - a loan modification - that does not involve the issuance of a new mortgage guaranty insurance certificate. With a recasted loan, a modification may be made in the type of instrument involved. In whatever form a recast loan takes, the major benefit to the borrower is the potential for substantially reduced mortgage payments.

 

For example, suppose you are relocated and buy a new home before your old home sells.  So due to limited funds, you put only 5% down on the new home, incurring PMI, and a higher payment.

 

When the old home sells, you have additional funds which you pay into the new loan as extra principle.   (or any source of funds)

The lender "recasts" the loan by re-amortizing the remaining balance over the remaining term.  This lowers your monthly P&I (principal and interest) payment, as well as perhaps dropping PMI.

A numbers example:  You put 5% down on a $200,000 home.  The $190,000 is financed at 7% over 30 years, with a payment of $1264.

You then pay an additional $30,000 to the lender 1 year down the road.  And by paying a re-casting fee (usually $150 - $250), the new loan balance of (approximately) $160,000 is amortized over 29 years, providing a new payment of $1075.

If this is of interest to you, make sure you let us know, so we can include it in our loan recommendations.  Not all loans allow this, though many do.