Hey there, it's me, your trusted broker, ready to share some valuable insights on a fantastic mortgage feature - the ability to pre-pay your principal and recast for lower payments. It's a game-changer for your mortgage and your monthly budget. Let's dive right in!
Cast Ahead and Reel in Lower Payments
Picture this: You make extra payments towards your mortgage principal, reducing your loan balance. Not only does this save you on interest costs, but it also shortens your total loan time (amortization). Now, here's the kicker – with , you have the option to recast your mortgage, instantly lowering your payments and giving you the budget room you need.
Our preferred lender offers this feature without any fees, and some other lenders might have it too. So, how exactly does this cool feature work? Let me break it down for you.
Understanding Mortgage Recasting
A mortgage recast is a straightforward way to recalculate your payments based on your reduced mortgage balance after making a lump sum payment or increasing your regular mortgage payment. You don't have to wait until your renewal or go through a refinance to enjoy lower payments. It's an instant budget-saver, especially when dealing with rising rates and prices.
When to Consider a Mortgage Recast
Here are some scenarios where a mortgage recast might be right for you:
You want to increase your budget room while saving on interest.
You need some extra monthly cash for savings or other expenses.
You want lower payments without changing your interest rate and term.
You want to avoid the refinance process and associated penalties.
You don't want to wait until your renewal to lower your payments.
You'd like to increase your home equity with a lump sum while lowering payments.
On the flip side, a recast might not be the best choice if you can save more through other options, prefer a refinance for larger financial goals, or qualify for a lower rate through improved credit or income.
Mortgage Recast and Pre-Payment Privileges
Pre-paying your mortgage principal during your term is called a pre-payment. The flexibility of your pre-payment privileges varies by lender, allowing you to make lump sum payments or increase regular payments. Generous pre-payment options allow you to reduce your loan balance, pay less interest, and shorten your amortization.
How a Mortgage Recast Works
You can easily recast your mortgage. Here's how:
Contact our servicing department to process your lump sum payment and reduce your payments simultaneously.
If you make a lump sum payment online, you can call later to lower your payments.
Ensure that the recast isn't too close to your mortgage payment date to avoid complications.
There's no fee for recasting, and the minimum pre-payment to recast is $100. However, a more substantial pre-payment amount will have a more significant impact on your payments.
You can recast your mortgage multiple times with lump sum payments.
Remember that not all lenders offer mortgage recasting, and some may charge a fee. If you can't recast, you'll need to wait until your renewal period to lower your payments.
Is a Mortgage Recast Worth It?
To give you a real-world example, let's say you recently came into some extra cash, like selling a second property or receiving an inheritance. If you make a significant lump sum payment on your mortgage, you can significantly reduce your monthly payments.
Based on a $500K mortgage, 25-year original amortization, and a 5-year fixed rate of 5.0%, a $100K lump sum payment three years into your term can free up about $623 per month. That's $15K saved over the remaining two years of your term!
Even with a smaller lump sum, like $20K, you can free up $125 a month, which adds up to $3K in budget room over the remaining two years.
To Recast or Not to Recast?
If you choose not to recast your mortgage and keep your payments the same after a lump sum payment, you'll still benefit. Your interest costs will decrease, and your principal payment will increase, helping you pay off your mortgage faster. However, recasting offers immediate budget relief, which can be crucial in today's uncertain times.
Recast or Refinance?
If your credit or income situation has improved since you took out your mortgage, refinancing might save you more than recasting, even with penalties. Refinancing can also provide additional funds for larger purposes like home upgrades or investments, often at a lower rate than other credit sources.
When a Recast Doesn't Make Sense
Recasting may not be your best option if you have immediate debt payments or if you can achieve greater benefits by investing the lump sum elsewhere. Keep in mind that investing in your mortgage offers after-tax savings and is risk-free.
In Conclusion
A mortgage recast is a fantastic tool that can help you lower your monthly payments, free up your budget, and save on interest costs. It's not the same as extending your amortization, and it offers immediate financial relief. Here to guide you through the process and help you make the best decision for your unique situation.
Don't hesitate to reach out for expert advice. I'm committed to finding the right solution for you and ensuring you get the best mortgage fit. Your financial goals are our top priority, so give us a call or send us an email to see how we can assist you in recasting your mortgage for a brighter financial future.
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