When it comes to lowering mortgage payments, there’s a powerful strategy that many overlook: mortgage recasting. This lesser-known method can save homeowners thousands of dollars over the life of their loan, but misconceptions often prevent people from taking advantage of it.
Below, we’ll debunk 10 common mortgage recasting myths that could be costing you money.
1. Mortgage Recasting and Refinancing Are the Same
One of the biggest myths is that mortgage recasting is just another term for refinancing. In reality, they are entirely different processes. With mortgage recasting, you make a lump-sum payment toward your principal, and the lender re-amortizes the loan, reducing your monthly payments. Unlike refinancing, recasting does not require a new loan, new interest rates, or expensive closing costs.
2. You Need to Pay Off a Huge Portion of Your Mortgage to Recast
Many homeowners assume that you need to pay off a massive chunk of your mortgage to qualify for a recast. While lenders typically require a minimum lump-sum payment (often around $5,000 or more), it doesn’t have to be a significant percentage of your loan balance. Even a moderate lump sum can result in noticeable monthly payment reductions.
3. Only Homeowners with High Incomes Can Benefit
Mortgage recasting isn’t just for wealthy homeowners. Anyone who comes into extra money—whether from a tax refund, bonus, inheritance, or savings—can take advantage of a recast. Since there are no credit checks or high fees involved, it’s a practical option for a wide range of borrowers.
4. Mortgage Recasting Eliminates Interest on Your Loan
Some believe that recasting eliminates interest payments entirely. While it doesn’t erase interest, it does reduce the total amount of interest paid over time. Since a recast lowers your principal balance and monthly payments, less interest accrues over the remaining life of the loan.
5. You Can Recast Any Type of Mortgage
Not all mortgages qualify for recasting. Generally, conventional loans and some jumbo loans are eligible, while FHA, VA, and USDA loans typically do not offer this option. Before assuming you can recast, check with your lender to confirm eligibility.
6. Recasting Your Mortgage Will Change Your Loan Term
Unlike refinancing, mortgage recasting does not change the length of your loan. If you started with a 30-year mortgage and recast after 10 years, you’ll still have 20 years remaining—just with lower payments. This makes it a great way to reduce costs without extending your debt timeline.
7. You Can Recast Anytime You Want
While mortgage recasting is a flexible tool, it’s not something you can do on demand. Most lenders have rules about how often you can recast and require a minimum lump sum to qualify. Some lenders may also charge a small fee (typically between $100 and $500) to process the recast.
8. Recasting Is the Best Option for Everyone
While mortgage recasting is a great strategy for lowering monthly payments, it’s not always the best financial move. If you have high-interest debt (like credit cards or personal loans), it may be more beneficial to pay those off first. Additionally, if you’re planning to sell your home soon, a recast may not provide enough long-term savings to be worth it.
9. Mortgage Recasting Affects Your Credit Score
Because a recast does not involve a new loan or credit inquiry, it has no impact on your credit score. Unlike refinancing, which requires a hard credit pull, mortgage recasting allows you to adjust your loan without affecting your credit history.
10. Lenders Don’t Allow Mortgage Recasting
While not every lender offers mortgage recasting, many major banks and financial institutions do. The key is knowing how to ask. Some lenders don’t advertise recasting because they make more money when homeowners refinance instead. If your lender doesn’t offer recasting, consider switching to one that does.
Is Mortgage Recasting Right for You?
If you’ve recently come into extra money and want to lower your mortgage payments without going through the hassle of refinancing, mortgage recasting could be a smart option. It offers lower payments, reduces interest costs, and keeps your original interest rate intact—making it a hidden gem in the world of homeownership.
Before making a decision, consult with your lender to see if your loan qualifies and crunch the numbers to determine if a recast aligns with your financial goals.
By debunking these common myths, you can make an informed decision and potentially save thousands over the life of your loan.
