You bought your home in 2021 and locked in an amazing 3.0% interest rate.
But now, life has changed. Maybe cash is tight, and you wish your monthly mortgage payment was lower.
You call a lender, and they suggest "Refinancing."
Stop. Do not do it. If you refinance today, you will trade your 3% rate for a 6.5% or 7% rate. You will end up paying more interest, not less.
There is a better, lesser-known option hidden in the banking fine print called "Mortgage Recasting." It allows you to keep your low rate, lower your monthly bill, and costs almost nothing. Here is how it works.
Disclaimer: Not all lenders offer recasting (e.g., FHA and VA loans are typically not eligible). Fees and minimum lump sums vary by bank. Consult your loan officer.
Why Recasting Is the Secret to Lowering Payments While Keeping Your 3% Rate
1. What is Mortgage Recasting?
Recasting is simple math. You pay a lump sum toward your principal balance, and the bank "re-calculates" (re-amortizes) your monthly payments based on the new, lower balance.
✨ Recast vs. Refinance: The Critical Difference
- Refinance: You get a new loan with a new interest rate (likely higher today) and pay closing costs ($3,000 - $5,000).
- Recast: You keep your existing loan and existing low rate. You only pay a small admin fee ($150 - $500).
2. Why Just "Paying Extra" Isn't Enough
You might ask: "Can't I just pay $20,000 extra toward my principal?"
If you just make a principal payment without recasting:
- You will pay off your loan earlier (e.g., in 22 years instead of 30).
- BUT your monthly payment amount stays exactly the same. You don't get immediate cash flow relief.
With Recasting: The bank stretches that remaining balance over the remaining months, immediately dropping your required monthly payment.
3. The Math: How Much Can You Save?
Let's look at a real-world scenario. Imagine you have a $400,000 loan at 3% interest with 25 years left. Your principal and interest payment is roughly $1,897/month.
Scenario: You receive a $50,000 inheritance or bonus and decide to Recast.
| Action | New Loan Balance | New Monthly Payment | Monthly Savings |
|---|---|---|---|
| Do Nothing | $400,000 | $1,897 | $0 |
| Recast ($50k Lump Sum) | $350,000 | ~$1,660 | Save ~$237 / month |
Result: You permanently lower your obligation by $237 every month, improving your household cash flow, without touching your interest rate.
4. Who Qualifies for a Recast?
This strategy is a hidden gem, but it has rules:
- Conventional Loans Only: Most Jumbo and Conventional loans qualify. Government-backed loans (FHA, VA, USDA) usually DO NOT allow recasting.
- Minimum Lump Sum: Most banks require you to pay at least $5,000 or $10,000 toward the principal to trigger a recast.
- Good Standing: You cannot be behind on payments.
5. How to Request It (Don't Say "Refinance")
You won't find a "Recast" button on the website. You must call customer service.
The Script:
"I would like to make a significant principal payment of $[Amount]. After that payment posts, I want to RECAST my mortgage to lower my monthly payments. What is your fee and procedure for this?"
Note: Some big banks like Chase, Wells Fargo, and Bank of America charge a fee between $150 and $500. This is peanuts compared to the $4,000 closing costs of a refinance.
Conclusion: The Smartest Move for Cash-Rich Homeowners
If you are sitting on extra cash but struggling with monthly bills, don't pay off the whole house, and definitely don't refinance into a 7% rate.
Recasting gives you the best of both worlds: You use your cash to buy lower monthly payments today, while keeping the "asset" of your low-interest loan forever.
Action Plan:
- Check your loan type. Is it Conventional (Fannie Mae/Freddie Mac)?
- Call your mortgage servicer and ask for their "Recast Department."
- Send your lump sum check only after you have the written recast agreement.
Helpful Resources:
Bankrate: Mortgage Recasting Guide
Chase Mortgage: Recast Procedures & Fees
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