Recasting Your Mortgage

Recasting is known as an adjustment to the current mortgage - a loan modification - that does not involve the issuance of a new mortgage guaranty insurance certificate. With a recasted loan, a modification may be made in the type of instrument involved. In whatever form a recast loan takes, the major benefit to the borrower is the potential for substantially reduced mortgage payments.

For example, suppose you are relocated and buy a new home before your old home sells.  Due to a limited amount of funds, you have only 10% to put down. Because of this you have incurred PMI, and a higher payment.

However, once the old home sells, you will have additional funds which you can pay into the new loan as extra principle.  

The lender "recasts" the loan by re-amortizing the remaining balance over the remaining term.  This lowers your monthly P&I (principal and interest) payment, as well as perhaps dropping PMI.

A numbers example:  You put 10% down on a $300,000 home.  The $270,000 is financed at 7% over 30 years, with a payment of $1,796.

You then pay an additional $50,000 to the lender 1 year down the road.  And by paying a re-casting fee (usually $150 - $250), the new loan balance of (approximately) $220,000 is amortized over 29 years, providing a new payment of $1,479.

Not all loans allow this, but many do. If you are seeking such a loan, apply with Allie Mae for assistance

 

 

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