In June of 2020, I bought a home for $325,000. Fast forward to today, and we still owe $226,000 at an interest rate of 3.25%. I’m considering recasting the mortgage to potentially lower my monthly payments, but I’m curious about the effects on how much of my payments will go towards the principal. If the payments are lower, does the split between principal and interest change, resulting in less going towards the principal? Any insights would be appreciated as I try to understand the benefits and risks of recasting.
The main advantage I see in recasting is to lower my minimum monthly payments. I’m currently paying extra towards my mortgage, which doesn’t affect the set payment. I plan to recast in about 4-5 years to reduce my payment, but I’ll continue paying the same amount as now. It’s more about having the option to reduce payments if needed in the future. Check with your bank about their terms; my bank allows a recast for a minimum of $10k without any fees.
@Bryce
Thank you for the information.
Recasting might make sense if you’ve made substantial extra payments on your mortgage and want to reduce your monthly financial burden without aiming to pay off your mortgage early. It recalculates your monthly payment based on the reduced principal but keeps your original loan term, so you end up paying more interest over the life of the loan than if you had not recast.
@Max
That clarifies a lot, thanks. It seems recasting might not be what I’m looking for then.
Recasting is essentially adjusting your loan to reflect your extra principal payments while keeping the original loan term. For example, if you’ve significantly reduced your loan balance early in the term, recasting would adjust the monthly payments to spread the remaining balance over the original remaining term.
@Noah
If they lower my payments, could I continue to pay the original amount and apply the extra to the principal?
Dakotah said:
@Noah
If they lower my payments, could I continue to pay the original amount and apply the extra to the principal?
Yes, continuing to pay more than the recalculated amount would essentially put you back on track to paying off the loan earlier, just like before the recast.
Recasting lowers your monthly payment by recalculating it based on the new, lower principal amount if you’ve paid more than expected. It’s useful if you want to reduce your monthly expenses while keeping the same loan term.
@Cypress
Thanks for the explanation!
With your interest rate at 3.25%, you might consider investing any extra funds rather than paying down the mortgage faster, as you could potentially earn more from those investments than you would save on interest.
Recasting is not about saving on interest or shortening the loan term. It’s about lowering your monthly obligations while maintaining the original end date of your mortgage.