Recast your mortgage

Want to lower your monthly mortgage payment but without the hassle (and cost) of refinancing? You may want to consider “recasting” your loan.
Recasting a mortgage involves paying down the principal amount owed on the loan. If you have funds available that you’d like to invest somewhere other than a low interest savings account, paying down the principal on your mortgage and having the loan recast will reduce your monthly payment fairly significantly.
The definition of “recast” when applied to a mortgage loan means to recalculate or re-amortize your current loan at the same interest rate and over the remaining length of the loan. The savings come due to the change in the amount financed in the loan. Here’s an example.
You bought a house 5 years ago and financed $200,000. The loan carried a 5% fixed rate interest for 30 years. Recently, you inherited $20,000 and would like to lower your monthly P & I mortgage payment of $1074 but can’t refinance because you owe more on the home than its current appraised value. You contact your lender and they offer to recast your loan. (Note: not all lenders will recast loans). Say, for the sake of the example, you paid $12,000 toward the principal during those 5 years and now owe about $188,000. The $20,000.00 would be applied to the principal making your new principal amount $168,000. You have 25 years remaining on your loan. Your new payment would be calculated on a loan amount of $168,000 for 25 years at 5% interest and your payment would be $982. The more you pay down the loan the greater than monthly savings.
Recasting may not be the answer for everyone but it may help some homeowners who need to lower their monthly payment. As always, you will want to speak with your accountant prior to making this decision.

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