Exlpaining a Mortgage Re-Cast and It's Benefits

A mortgage recast is a process in which the remaining balance of a mortgage loan is adjusted based on a substantial lump-sum payment made by the borrower. Here's a more detailed explanation of how it works and its benefits:

  1. Lump-sum Payment: The process begins when the borrower makes a significant one-time payment towards the principal balance of the mortgage. This payment is typically larger than the required monthly installment but smaller than paying off the entire remaining balance of the loan. The lump-sum payment can come from various sources such as an inheritance, bonus, or sale of assets.

  2. Recalculation of Loan Balance: Once the lump-sum payment is received by the lender, they recalculate the outstanding balance of the mortgage loan. This calculation considers the original loan amount, the remaining term of the loan, the interest rate, and the new principal balance after the lump-sum payment.

  3. Reamortization: With the adjusted principal balance, the lender then recalculates the monthly payments required to pay off the remaining loan balance over the remaining term of the mortgage. This process is known as reamortization. The new monthly payments are typically lower than the original monthly payments because they are spread out over the remaining term of the loan with the reduced principal balance.

  4. No Change in Interest Rate or Loan Term: It's important to note that a mortgage recast does not involve changing the interest rate or extending the term of the loan. The loan term remains the same, and the interest rate remains unchanged. The only adjustments made are to the principal balance and consequently, the monthly payments.

Benefits of Mortgage Recasting:

  1. Lower Monthly Payments: The primary benefit of a mortgage recast is that it can significantly lower the monthly mortgage payments without the need to refinance. This reduction in monthly payments can ease the financial burden on homeowners and improve their monthly cash flow.

  2. No Need for Refinancing: Unlike refinancing, which involves taking out a new loan with different terms and potentially incurring fees and closing costs, mortgage recasting allows homeowners to adjust their existing loan without changing the interest rate or loan term. This makes it a simpler and more cost-effective option for lowering monthly payments.

  3. Preservation of Interest Rate and Loan Term: By keeping the original interest rate and loan term intact, homeowners can maintain the benefits of their existing mortgage, such as a favorable interest rate or a specific payoff timeline.

  4. Financial Flexibility: Lowering monthly mortgage payments through a recast can free up more cash flow for other financial goals, such as saving for retirement, paying off other debts, or investing in home improvements.

Overall, a mortgage recast offers homeowners a way to adjust their mortgage payments to better suit their financial situation without the complexities and costs associated with refinancing. It can be particularly beneficial for those who have received a windfall or experienced a change in financial circumstances and want to reduce their monthly financial obligations.

For more information on mortgage recasting, give me a call today! 702-860-2127

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