What Is Loan Recasting?
If you wish you could rearrange your mortgage without actually refinancing your home, listen up! Although recasting is seldom talked about or advertised in banks, it can be a useful option for many homeowners and can cost as little as $250. Here’s a closer look at exactly what loan recasting is!
“A recast is when a customer wants to apply an additional sum of money to substantially reduce the unpaid principal balance of their loan and lower the monthly payment,” says Kris Yamamoto, senior vice president of corporate communications for Bank of America. “The customer’s loan term and interest rate remain unchanged. However, re-amortizing the loan based on the newly reduced principal amount would result in a lower monthly payment. Upon request to recast a loan, we would confirm that the investor of the loan allows recasting and ensure the customer is current on their payments. Typically, only fixed-rate loans can be recast, but adjustable-rate loans may be considered on a case-by-case basis.”
Wells Fargo spokesman Tom Goyda says loan recasts are rare, in part because not all loans are eligible.
“Conventional, conforming Fannie Mae and Freddie Mac loans are generally eligible, but loan recasts are not allowed on FHA and VA loans,” Goyda says. “Recasting a jumbo loan depends on the individual loan.”
Goyda says that when interest rates are low, borrowers are more interested in refinancing to a lower mortgage rate. Other customers opt for a free biweekly mortgage payment plan to pay off their loan more quickly by making extra principal payments each year.
“If the goal is to pay off your mortgage faster, a free, biweekly payment plan is a better option,” Goyda says. “A loan recast lowers your payments, but it doesn’t shorten your loan term.”
Bank of America and Wells Fargo Home Mortgage charge customers $250 for a loan recast. At Wells Fargo, customers must make a lump sum payment of $5,000 or 10 percent of the remaining loan balance, whichever is greater, to qualify for a loan recast.
– via www.bankrate.com
A Fresh Approach
While getting a mortgage recast or re-amortizing a loan isn’t a new process, it has new meaning in today’s financial climate. As a finance technique, it can offer serious benefits to people who’ve run into trouble, and also to people who aren’t in trouble but can still reap the benefits of this technique. Here’s how it could benefit you!
Not for troubled loans only
But reamortization isn’t only for borrowers in trouble. The technique can be useful for those who have the wherewithal to pay down a sizable chunk of their mortgage, but don’t wish to change any of the terms of the loan.
For example, let’s say you came into an inheritance, and determined that paying off a portion of your mortgage principal was the best use for the funds. Using this calculator from Bankrate.com, you can see that the monthly savings can be notable on a 30-year, $325,000 loan at 7% interest by reducing the loan principal amount to $300,000 — decreasing payments by nearly $170 per month. A higher interest rate, combined with a larger lump sum, would yield even greater savings.
With mortgage recasting, the interest rate and terms remain the same. The savings per month are determined solely by the amount of money you choose to apply toward the principal mortgage amount. Perhaps because of the simplicity of the transaction, recasting is often much cheaper than a full refinancing, which can run into the thousands of dollars.
– via The Motley Fool
Have you ever considered getting your mortgage recast?