Have you come into some money through an inheritance or a large bonus? You might want to consider using this money to pay down the principal balance on your mortgage loan and asking your lender for a mortgage loan recast to lower your monthly payments.

Or, perhaps you’re thinking of refinancing your mortgage loan. If you have some extra money saved that you can apply toward your loan’s principal balance, a loan recast may be a better option through your lender than a traditional refinance since you can avoid the inconvenience and expense of a refinance.

What is a mortgage recast?

 A mortgage recast or re-amortization enables you to lower your monthly mortgage payments. Typically, with a traditional installment loan, you borrow money and repay it via fixed monthly payments over a period of time agreed upon with your lender. Part of your monthly payment goes toward your repayment of the loan, while the rest goes toward interest costs.

However, if you can make a large extra payment on your loan, you can reduce your unpaid principal balance and lower your monthly payments since you’ll be paying less interest. But you must ask your lender to see if you can recast your loan to adjust your monthly payments, because your lender may not offer a recast option or automatically readjust your monthly payments.

Why would you want to recast your mortgage?

It all depends on what your individual circumstances and financial goals are. Talk to your financial advisor to review your financial plan. Some possible options include:

• Refinancing your loan, if your mortgage rate is higher than current interest rates.
• Making extra payments biweekly, bimonthly or annually if you want to pay off your mortgage quickly, since a loan recast won’t shorten your loan term.
• Recasting your loan, if you have credit issues and won’t qualify for a home refinance, and you have the funds to make a large payment.
• If you’re making mortgage payments on two loans because you bought a new home before your old home sold, you can use the proceeds from the sale of your old home to pay down the balance on your new home loan and recast it. (Note: Typically, you can’t do a loan recast within the first 90 days of a new home loan.)

How do you go about recasting your loan?

You must contact your existing lender to see if they offer this service and request it. Depending upon the type of loan you have, it may or may not be eligible for a recast. Generally, conventional loans and conforming Fannie Mae and Freddie Mac loans are eligible, while FHA and VA loans are ineligible. Also, fixed-rate loan recasts are more common than recasts on adjustable-rate mortgages or jumbo loans.

A loan recast usually comes with a fee – sometimes as low as $150 to $250. Additionally, you’ll need to make a specific lump sum payment toward your loan principal, such as $5,000 or 10% of the remaining loan balance, to qualify for a loan recast. Ask your lender about their recasting requirements.

Is a loan recast right for you?

If you need help determining if a loan recast is the right choice for your individual situation, contact the experienced mortgage specialists at Grandview Lending in Indianapolis. They can run some numbers to calculate your loan payments for a loan recast versus refinancing or making extra payments on your existing loan and help you review your options. Contact them today at 866-690-4920.

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