Recasting is known as an adjustment to the current mortgage, a recalculation, or reamortization of the loan that does not involve the issuance of a new mortgage guaranty insurance certificate. The major benefit to the borrower is the potential for substantially reduced mortgage payments - without the cost of refinancing. Sometimes this happens when a borrower comes into a large sum of money and is able to pay down their mortgage. However, recasting most frequently occurs when a borrower is in financial distress and needs to refinance their mortgage to lower monthly payments.
It works like refinancing, where the lender pays off the previous mortgage and re-issues a new loan for a lower amount and there is a twist: the amount of the new loan is lower because the borrower must take a portion of the equity he got out of refinancing and put it towards the loan instead of a boat or remodeling or college tuition, making a significant payment of principal. The payments drop because there is a reduction in the principal amount owed, but they also drop because the amortization schedule has been lengthened to allow more time to pay the principal. If a mortgage is recast instead of refinanced, there are no closing costs and fees, usually just a small flat fee.
A numbers example: You put 10% down on a $300,000 home. The $270,000 is financed at 6% over 30 years, with a payment of $1,619.00.
You then pay an additional $50,000 to the lender 1 year down the road. And by paying a re-casting fee (usually $250 - $450), the new loan balance of (approximately) $220,000 is amortized over 29 years, providing a new payment of $1320.00.
Not all lenders offer customers the ability to recast their mortgage. Originating lenders often sell the loans they originate to investors. The investors aren't willing to provide that level of flexibility to borrowers, so the loans can't be recast. Call First Colorado Mortgage Solutions at (303) 651-7803 for a free consultation to see if considering a recasting feature in your next mortgage would make the most sense for you. It could easily save you thousands down the road.
