Recasting -- A New Way to Cut A Mortgage

Whether you have a jumbo loan or a conforming loan, you might be able to use a little known strategy called recasting to lower your payments for a small fee.  Recasting or re-amortizing allows a borrower to lower their monthly payment on an existing fixed rate loan without having to apply for a new loan and without having to pay a reappraisal fee.  Here’s how it works.

Recast in this context, is a fancy way of saying recalculate. An even more fancy way of saying recalculate is to say re-amortize. No matter how you say it, they all mean the same thing.

When a mortgage is recast, the lender works out a new amortization schedule, usually with the same interest rate, after the borrower has made a large payment on the loan to pay down the principal balance. Typically, this type of recasting can only occur once during the life of a loan.

Though it is possible for recasting to occur after someone comes into a large sum of money and pays down their home mortgage, it most frequently occurs when a borrower is in financial distress and needs to refinance to lower monthly payments. It works almost exactly like refinancing wherein the lender pays off the previous mortgage and re-issues a new loan for a lower amount, but there is a twist.

The amount of the new loan is lower because the borrower must take a portion of the equity he got out of refinancing and put it towards the loan instead of a boat or remodeling or college tuition, making a significant payment of principal. So, the payments drop because there is a reduction in the principal amount owed, but they also drop because the amortization schedule has been lengthened to allow more time to pay the principal. If a mortgage is recast instead of refinanced, there are no closing costs and fees, usually just a small flat fee. 

The bad news? Banks don't advertise the strategy, perhaps because it is less lucrative than refinancing a mortgage. And not all loans are eligible. To find out more, you will have to ask your lender directly.  Of course, always check with your financial advisor for direction on what works best for you. 

25440 VIA CICINDELA , Carmel Valley MLS #: 81109561 $1,895,000 Beds: 4 Baths: 3 (2/1)
Dramatic Carmel Valley and Santa Lucia mountain views from this beautifully remodeled Tierra Grande masterpiece.  Completely remodeled  - Viking, LG, granite, marble, 4 fireplaces, custom finishes and extensive Carmel stone work.  New carpets in family room and upstairs bedroom. Large sunny south-facing patio and deck.  3 car garage  SqFt: 4,594 Lot Size: 43,560 Sqft   Come see me Sat and Sun 2-4! 

26225 ATHERTON PLACE, Carmel MLS #: 81029734 $998,000 Beds: 4 Baths: 4 (4/0)
1970's ranch style home needs updating. Large Lot with lots of water and water credits. Good rental history with three units. Distant ocean view. Great place for the right person.  SqFt: 3,013 Lot Size: .92 Acres

4 YANKEE POINT DRIVE, Carmel Highlands MLS #: 81051778 $849,000 Beds: 3 Baths: 2 (2/0)
Best value in Carmel Highlands. Yankee Point Home under $1.0M! Views of the ocean, key to beach, many fresh details, best of appliances, fruit trees in a large side yard, very private, nestled among the trees.  Decks with plenty of outdoor area to entertain. Home shows pride of ownership in all respects.  Everything is in wonderful move-in condition. Regular sale.  SqFt: 1,808 Lot Size: 19,084 Sqft

14 SKYLINE CREST, Monterey MLS #: 81021350 $450,000 Beds: 3 Baths: 2 (2/0)
Major price reduction! Attractive condo in sought after Skyline Crest complex Monterey. Preferred location backs up to the Pebble Beach forest. Enjoy the city lights and forest views from this well maintained, little used vacation home! Coveted Skyline Crest is centrally located in Skyline Forest and is close to everything the Monterey Peninsula has to offer.  SqFt: 2,040 Lot Size: 1,836 Sqft

© Patty Ross, KRXA Radio Show #201  April 1, 2011