"Recasting" your mortgage: NYTimes article

[debtheaven]

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.

One of the people from WIRR did this recently when she sold their old home, which they had hung onto as a rental property waiting for a better market to sell it. 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.

ETA: Actually the rental loan was the second time we have done this. The first time was 11 years ago. DH took on a big mortgage to buy my ex out of his half of the house, then DH sold his late parents' house about six months later and "recast" his mortgage with our credit union.

[Deleted]

I'm not sure if I understand the impact. You say the "terms" of the mortgage don't change. So how is that different from my just adding a very large lump sum to my next monthly payment and having it credited to principal? Either the term shortens because you paid it off faster, or your monthly payment has to decrease.

[debtheaven]

So how is that different from my just adding a very large lump sum to my next monthly payment and having it credited to principal?

Athena if your mortgage holder does that, it's probably exactly the same thing.

ETA: I am in Europe (France) and this is common here. I was very surprised to see a NYT article on it, so I was assuming it is not common practice in the US.

I still think it isn't, because if it was, there would not have been an article on it. Perhaps this is just preaching to the converted / savvy.

[Deleted]

I'm guessing (but only guessing) that it lowers your monthly payment? That would be the only incentive that I can imagine. Like other posters have said, you could just give them an extra payment of that lump sum.

[debtheaven]

Possibly. But then I'm left wondering if it's that easy, why is the NYT doing an article about it LOL?

Can you just send in a lump sum check to your mortgage? If so, then yes, it's probably just the same thing.

ETA: OK, I think I have the answer.

I think sending in a lump sum check will shorten your term, but not necessarily lower your mortgage payment. I think the idea here is, here is a sum of money, please recalculate my monthly payments. So yes, it would lower the monthly payments, plus save on interest, long-term.

As I stated, I think this is especially useful to people who are selling off a property they have had to hang onto for longer than they would have liked to. Once they put that money in, they can lower their monthly payments.

[lurkyloo]

I haven't read it myself, but saw someone on Facebook tearing into that particular article--apparently the math was way, way off. (e.g. savings of $51/mo when it should have been more like $190/mo).

That aside, I think it's a great idea in some situations. Especially if you're trying to bring carrying costs in line with rental payments, or would like to see some immediate benefit from putting extra money in, as opposed to knocking x number of payments off the back end. Just make sure it's not a NYT journalist doing the recalculating

[DVM gone riding]

I would have thought "recasting" recalculated the amount each month?? So lets say you owe X at 5.75% for 30 yr for a month payment of 1200. Then you pay Y in a large chunk. So the re-calculate but don't change the %rate or the time remaining on the loan-so now you pay 800/month or something like that.??

Is that not how it would work? Sounds like a great idea to me but I had no idea you could do it. I have tried to get SL#1 to do that because I have paid so much extra but it was a no go.

[robbase]

no link to the article?

[Deleted]

I would have thought "recasting" recalculated the amount each month?? So lets say you owe X at 5.75% for 30 yr for a month payment of 1200. Then you pay Y in a large chunk. So the re-calculate but don't change the %rate or the time remaining on the loan-so now you pay 800/month or something like that.??

Correct. BofA was doing quite a number of these late 2007 beinging of 2008. I don't know if they still are doing them.
It works for situations where the mortgage rate hasn't changed significantly in either direction for a while. It's a lot cheaper than refying when doing a principle pay-down; usually a couple hundred bucks vs closer to two or three thousand for a refi.

[debtheaven]

Robbase
No, I didn't include the link because you have to be registered with the NYT. The title of the article is "A Little-Known Strategy for Cutting Mortgage Payments".

[The J]

You say the "terms" of the mortgage don't change. So how is that different from my just adding a very large lump sum to my next monthly payment and having it credited to principal? Either the term shortens because you paid it off faster, or your monthly payment has to decrease.

By terms, I think she means the rate and term. So if you have 24 years left, you'll still have 24 years left, just at a lower payment.

[8 Bit WWBG]

...:::"By terms, I think she means the rate and term. So if you have 24 years left, you'll still have 24 years left, just at a lower payment. ":::...

That is what I'm thinking too. If you make a very large principal payment, your payments won't change you'll just have to make less of them. If you "recast" you could get a lower payment.

I will be looking to do something like this when I get close to 20% equity. I'd want to make a payment to bring me just over the threshold so I can get rid of PMI. Might as well enjoy the benefits of a lower payment.

[debtheaven]

Bonnap, yes. J and Gowron, you are absolutely right, that's what I meant.

I used the word "terms" in a general, rather than strictly financial, sense. Thanks for clarifying LOL!

ETA: I wanted to "exalt" all three of you for mind-reading, but I can only exalt one person per hour LOL.