Mortgage Recasting: What You Should Know Before You Reamortize – In this episode we covered mortgage reversions. Usually, this question comes up when the borrower has recently received a lump sum, whether it’s a recent inheritance, bonus or selling their home, and is interested in reducing the principal.
There are two general ways to deal with new cash flow: 1) recasting your mortgage, 2) paying off the principal without recasting
Mortgage Recasting: What You Should Know Before You Reamortize
Unlike a traditional refinance, with a refinance, you basically go into an existing loan, open it, and repeat it without starting from scratch.
What Is Mortgage Refinancing?
Let’s say you just got $100,000 and started out with a $300,000 mortgage. When you recast, you would put this at $100,000 per principal. You tell the bank you want to refinance and they would reduce the balance from $300,000 to $200,000. The time remaining on the loan would remain the same, but your monthly installment would decrease, which would reduce the interest owed for the loan period.
It is important to note that with the new versions, your interest rate or the number of loan years will not change. In restructuring, the amount of the loan changes, not the loan itself. Also, you usually need to have a few months worth of payments. As a rule of thumb, we recommend at least two. You also can’t just give the bank a $5,000 principal discount and ask for a redraft. They usually require a minimum of $10,000, and some banks limit you to one refinance per year and only a couple over the life of the loan. You should also expect the fee to be generally between $200 and $300, although it varies from bank to bank.
But it should be noted that since this isn’t a refinance, no appraisals are done and you don’t have to go through the approval process. It will only be an administrative fee.
If you are interested in reprocessing, check with your servicing bank about their rules and whether they allow reprocessing.
Loan Modification Vs. Refinance: How To Decide
Let’s say you drop $100,000 against $300,000 but don’t reformulate. In this case, the bank will apply this to your monthly balance. They would keep your payments the same, but your mortgage payment timeline would speed up, and as a result, the interest you would pay would decrease over time because you would have reduced the number of payments left.
Redrafting is more suitable for people on a fixed budget or fixed income who need to strategically hit a certain dollar a month. Generally, people who come to us with extra cash usually choose to pay off their mortgage earlier.
If you have any questions about this, or if you have any questions you’d like us to answer on our podcast, you can email your questions to team@ or call us at (602) 535-2171. Don’t forget to ask us for a free quote on your next mortgage. We will work personally with you and help you throughout the process.
Thanks for listening and reading the Mortgage Brothers Show. Let us know if you have any questions you’d like us to answer on this podcast. You can email your questions to Tom@ or Eddie@.
How Does A Lump Sum Payment On A Home Loan Help You?
Don’t forget to ask us for a free quote on your next mortgage. We will work personally with you and help you throughout the process.
Signature Home Loans LLC does not provide tax, legal or accounting advice. This material has been prepared for informational purposes only. You should consult your own tax, legal and accounting advisors before entering into any transaction. Signature mortgages NMLS 1007154, NMLS #210917 and 1618695. Similar mortgage lender. A mortgage refinance is when you make a lump sum payment on your mortgage to lower your monthly mortgage payments. Everything else, including the mortgage interest rate and loan term, remains unchanged. The only thing that will change is your mortgage balance due to the lump sum and the amount of your monthly mortgage payments.
Recasting means reorganizing. When you restructure a loan, you are asking the lender to restructure your loan. More specifically, your mortgage will be amortized based on your new reduced mortgage balance for the same loan term. Restructuring your mortgage means that your lender will recalculate a new mortgage schedule and a smaller loan balance will be spread over the same period. This results in lower monthly payments on your mortgage.
A mortgage recast is also known as a remortgage because the repayment schedule of your mortgage is changed. In order to restructure your mortgage, you will need to make a lump sum payment. Your mortgage lender must approve your mortgage redraft request and may charge a redraft fee or service fee. Let’s look at an example of a mortgage refinance to see how it works:
This Is What It Means To Recast Your Mortgage For The Best Bottom Line
Let’s say you just got a $400,000 conventional mortgage with an interest rate of 3% and a term of 30 years. Your current principal balance is $400,000 and your monthly mortgage payment is $1,686. You’ve just received a large inheritance, so you plan to use $100,000 to refinance your mortgage. Also, let’s assume your lender doesn’t charge a redraft fee.
By using your $100,000 inheritance to reshape your mortgage, your new mortgage balance is now just $300,000. Your mortgage interest rate and loan term stay the same, but your monthly payment changes. How much will your monthly payment decrease?
Using the mortgage payment calculator, we can calculate that your monthly mortgage payment is now $1,265 per month. That’s $421 less money each month you’ll have to pay on your mortgage over 30 years. By paying a lump sum of $100,000 to restructure your mortgage, you free up money and increase your monthly cash flow.
The main question borrowers may have is, “Will refinancing my mortgage save me money?” The answer to this question depends not only on your mortgage interest rate, but on the current mortgage interest rates of your lender and other lenders.
Can I Lower My Mortgage Rate Without Refinancing?
Based on the example above, your monthly payment is now $1,265 per month. While the $421 difference is immediately seen as money saved each month, you also save on mortgage interest costs. Since you are borrowing a smaller amount now, you will pay less interest over time. Before the mortgage was restructured, the total interest payable was $207,109. After recasting, the total interest payable is only $155,332. Paying a $100,000 lump sum today will save you $51,777. in interest expenses for more than 30 years. You will also instantly collect $100,000 in home equity today as well.
If you have a large amount of money available, refinancing your mortgage may seem like a good idea to lower your mortgage payments. However, you should also consider options for refinancing your mortgage to see if there is a better use for that money. You also need to consider whether mortgage financing can save you more money.
With the reformulation of the mortgage, the interest rate remains the same. What happens if the lenders current mortgage rates are lower than your agreed mortgage? If you refinance your mortgage, you won’t be able to get a lower interest rate. To get a different interest rate, you need to refinance your mortgage.
Also, using cash to restructure your mortgage may not always make sense. In the example above, paying $100,000 today will save you $51,777 over 30 years. This will generate an annual return of around 1.7% on your mortgage. If you used that $100,000 in other ways, such as improving your home to increase its value, investing in stocks or bonds, or paying off high-interest debt like credit cards, you might get better returns or savings.
What Is A Mortgage Recast & How Does It Save You Money?
Lenders may charge a redraft fee or service fee for processing your mortgage redraft request. This fee is usually only a few hundred dollars. For example, Rocket Mortgage charges a redraft fee of $250.
Restructuring your mortgage means that your loan term and interest rate will remain the same. Refinancing your mortgage means you change the terms of your mortgage, which may mean changes to your loan term, interest rate and/or mortgage balance.
If you want to use your home equity to borrow more money, you’ll need cash-out financing to do so. You can’t borrow more money by restructuring your mortgage. Instead, a mortgage refinance requires you to pay more money towards your mortgage. If you want to change the interest rate on your loan, which happens if interest rates have dropped, you have to too