If you’re a homeowner who wants to save money on your mortgage, you’ve got several options. But you need to choose the one that best fits your financial situation. The two main choices available to many borrowers are recasting or refinancing their mortgage. Each option can help you lower your monthly mortgage payment and save money in interest costs.

In order to help you make a decision about which choice is right for you, here is some information you’ll need to consider.

Recasting Your Mortgage

With a recast, you would pay an additional amount of money toward your loan balance (typically, $5,000 or more). Depending upon your lender, you may pay this amount as a lump sum or as extra regular payments. Your lender would re-calculate your monthly payments based on the remaining loan balance.

Pros of recasting

• You’ll reduce your monthly mortgage payment.
• While your interest rate doesn’t change, you’ll pay less in interest over remaining life of the loan.
• You don’t have to go through a credit check again since you already have the loan.
• You’ll avoid the cost of refinancing.
• You’ll have more cash each month.

Cons of recasting

• You have to pay your lender a one-time fee (about $250).
• Generally, adjustable-rate loans aren’t eligible for recasts – only fixed-rate loans. Also recasts aren’t allowed on FHA and VA loans. Only conventional, conforming Fannie Mae and Freddie Mac loans are eligible.

Refinancing Your Mortgage

With a refinance, you replace your current loan with a new loan. Or, in others words, you use the new loan to pay off the old loan.

Pros of refinancing

• You’ll lower your monthly payments.
• You may be able to improve your loan term, such as replacing a 30-year loan with a 15-year loan.
• It enables you to go from an adjustable-rate mortgage to go to a fixed-rate loan.
• Refinancing allows you to consolidate a home equity loan or a second mortgage with your home mortgage – saving you money.
• A cash-out refinance enables you pull out money to use on needed expenses like a home renovation or college expenses.

Cons of refinancing

• You should only refinance if you’re getting a lower interest rate.
• You’ll have to go through the loan application and credit check process again.
• You may not qualify for a refinance.
• You may have to pay a prepayment penalty for paying off your existing loan early.
• You’ll have to pay closing costs, such as appraisal fees, origination fees, etc.
• A new long-term loan means you’ll be starting over again from scratch.

Which Should You Do?

If you need help determining which is right for your situation – a loan recast or a refinance – contact the experienced mortgage specialists at Grandview Lending in Indianapolis. They can help you review your current loan and run some numbers to calculate how much your loan payments would be for a recast versus a refinance. Contact them today at 866-690-4920.

Photo credit: 123RF / Natalia Merzlyakova