I thought this was an interesting article. "Recasting" your mortgage is basically bringing in a lump sum and having your mortgage holder recalculate what you owe, using the SAME terms as your CURRENT mortgage. It is NOT a refinance, because the terms of the mortgage do not change.
Apparently not all lenders do this, but it is something to keep in mind if you have recently bought a new home before selling the old home, or perhaps if you suddenly come into a sum of money. It is also something to keep in mind if you are currently buying a new home knowing that you still have to sell your old home. In that case, you might want to make sure your lender does this.
Pay-No-Interest from the South board did this when she sold their rental property. We did it on our rental reno loan when we got a second payout from our insurance company months after taking out the original loan.
It is NOT my intention to start yet another fruitless debate about prepaying one's mortgage vs investing. I just wanted to point out that this option exists because I think there are times it can be useful.
Last Edit: Jan 9, 2011 17:58:02 GMT -5 by debtheaven - Back to Top
Post by piratesparrot on Jan 9, 2011 18:12:09 GMT -5
I work at a bank that does this. We call it a no fee modification. When you pay down your principal in one large lump sum and want your payment dropped accordingly we will do it without changing the rate or term.
Post by debtheaven on Jan 14, 2011 20:25:34 GMT -5
Jando I have no idea. This said I was surprised that the article quoted a sum that was quite low, not sure I remember, maybe 2K? Hopefully Parrot will weigh in but I wanted to answer.
The two times we did this, it was with much bigger sums. Once after DH sold his late parents' home, and then again when we got our insurance payouts after our renter trashed the apt. We had a 25K loan after the trashing. The final costs came to 34K, we had two insurance payouts (over six months, we did this twice with that loan, once with each insurance payout). I can't remember the exact figures because some of the insurance money went to our current acct rather than to the loan.
But ULTIMATELY, we ended up going from a 25K loan (for 34K of repairs) to a 14K loan.
Hope this helps!
Last Edit: Jan 14, 2011 20:30:36 GMT -5 by debtheaven - Back to Top
Post by debtheaven on Jan 16, 2011 21:03:20 GMT -5
Better yet. Just pay it off and be done with it.
I agree! And this is a great way to pay it off faster when you come into a lump sum for whatever reason (inheritance, insurance payout, home sale, etc). It is MUCH cheaper than refinancing. Few people can pay off a mortgage just by snapping their fingers LOL.
Last Edit: Jan 16, 2011 21:05:45 GMT -5 by debtheaven - Back to Top
We have a 30 year loan - which would be 27 now but we have made a few lump sum payments on the loan and brought it down to 19. This is kind of like refinancing on your own terms. Instead of paying an extra $100 each month of principle or whatever we wait about 6 months and make a fairly significant extra principle payment with extra cash we have saved. We won't be able to do this forever as now we have a kid in the picture and down the road maybe we'll have another one. I figure we should be able to swing a couple more lump sums over the next year or so and that's probably it. Maybe we can get down to a 15 year loan.
Post by paynointerest on Jan 17, 2011 9:03:12 GMT -5
Like debtheaven said, I "recast" my mortgage (the term my bank used was "re-amoritized"). My reason was we sold a house 4 months after we closed on our current house and it only cost $75 to do this and we already had a good interest rate at 5%. I had enough from the sale that I put a portion of that money down to lower the payment by ~$200 per month. After I did that, I put another lump sum down to raise the amount of my "principal:interest" ratio since the greatest amount if interest is paid at the beginning 1/2 of the loan. My lump sum before "re-amoritizing" was $35K. I put down $10K after we reamoritized the mortgage.
My plan is to be aggressive with my payments until the principle:interest ratio are equal, then I may lower the payments if $$ needs to be directed elsewhere. Keep in mind, DH and I are also putting 20-25% of our income savings in addition to the extra $$ towards our mortgage.
My original mortgage payment was ~$1010/month (without insurance, taxes - I don't escrow that in). Now it is $800/month and my total with insurance, taxes is $1100/month. My DH and I were already paying $1600 per month towards the mortgage and we are continuing to do so, effectively doubling our mortgage payment and more is going to principle than it would have originally. The only reason this is happening was because I put a second "lump" sum down after we "reamoritized" the mortgage.
A friend asked why not put the giant sum toward the original loan reducing the payoff to 15 years since that is what I'm doing now. Here are my reasons:
1. If something were to happen and DH or I would lose our jobs, we could easily pay the mortgage (only pay the $800 per month), save money, and cover other expenses on one salary.
2. We were only 4 months into the loan and so we weren't losing anything by re-amoritizing the loan. This may not work if you've have the loan for several years.
3. I ran the numbers I calculated that we would be saving between $8K-$12K in interest - I don't remember the exact numbers anymore.
4. Now, when we have any extra money left over I dump it toward our mortgage and more is going toward the principle than it would have originally.
Post by debtheaven on Jan 17, 2011 17:09:44 GMT -5
True. But, more people COULD pay off their mortgage but have been convinced by the talking heads that doing so is almost an impossible feat of daring do.
Snerdley this is WIR, you are preaching to the converted here LOL. Our home is paid off. But, we are older than many / most of the posters here. We do have rental mortgages but that was our choice (they are our retirement plan).
PayNoInterest thanks for explaining things in more detail! You've put yourself in a fabulous position now.
Last Edit: Jan 17, 2011 17:48:27 GMT -5 by debtheaven - Back to Top
I don't have a lump sum payment to throw at my mortgage, but late last year, interest rates were so low, that I FINALLY decided to refinance. I was originally in a 30-year loan with 23 years left at 5 3/4% interest. I was able to refinance to a 15 year loan at 4% interest and my payments increased by about $30/month. That to me was TOTALLY worth it! I'm still trying to pay at least a little bit each month to equal out to 1 extra payment/year (more if I have extra $$), but my goal is to have my house paid off by the time I'm 45...so I've got 8 years....and I am DEFINITELY stubborn enough to do it! ;D