The Mortgage Recast Calculator helps you estimate how a lump-sum payment can lower your monthly mortgage payments. By reducing the principal balance, a recast can adjust your payments without the need to refinance.
Use this tool to see how much you can save and how your loan term is affected.
Mortgage Recast Calculator
How to calculate a recast mortgage?
Calculating a recast mortgage involves reducing the principal balance with a lump-sum payment and recalculating the remaining payments over the original loan term. Here’s how to calculate it:
- Identify the current mortgage balance: This is the total outstanding principal on your loan.
- Determine the lump-sum payment: The amount you will apply to the principal.
- Subtract the lump-sum from the mortgage balance: This will give you the new loan balance.
Example:
- Initial mortgage balance: $300,000
- Lump-sum payment: $50,000
- New principal balance: $300,000 – $50,000 = $250,000
The key points to remember:
- Interest Rate: Remains unchanged after a recast.
- Loan Term: Stays the same as the original term.
- Fees: Recasting typically involves a small administrative fee, usually between $100 and $500.
How to calculate the monthly mortgage after recasting?
To calculate the new monthly mortgage payment after a recast, the remaining principal is spread over the remaining term of the loan at the original interest rate.
The formula for this recalculation resembles a standard mortgage amortization formula:
\( M = \frac{P \cdot r}{1 – (1 + r)^{-n}}\)
Where:
- M: New monthly payment
- P: Adjusted principal balance (after applying the lump-sum payment)
- r: Monthly interest rate (annual rate divided by 12)
- n: Number of months remaining on the mortgage
Example: If a borrower applies a $50,000 lump sum to a $300,000 mortgage with an interest rate of 4%, the remaining principal becomes $250,000. If the borrower has 240 months left on the loan, the new monthly payment is calculated by spreading this $250,000 over the remaining 240 months at the original 4% interest rate.
Key Benefits of Recasting a Mortgage
Recasting a mortgage offers several advantages over refinancing or maintaining the original loan structure. These benefits can be particularly appealing for borrowers looking to reduce monthly payments without resetting the loan term or altering the interest rate.
Major benefits include:
- Lower Monthly Payments: The main advantage is a lower monthly mortgage payment due to the reduced principal balance.
- Avoid Refinancing Costs: Unlike refinancing, a recast does not require new loan origination, appraisal, or closing costs.
- Retain Your Interest Rate: For borrowers with a favorable interest rate, recasting allows them to keep the same rate without having to qualify for a new loan.
| Benefit | Recast Mortgage | Refinance Mortgage |
|---|---|---|
| Lower Monthly Payments | Yes | Yes |
| Loan Term Change | No | Yes (usually extended or shortened) |
| Interest Rate Change | No | Yes (new rate is applied) |
| Closing Costs | Minimal (admin fee) | Yes (includes appraisal, origination fees) |
| Credit Check Required | No | Yes |
Mortgage Recast vs. Refinancing: Key Differences
When deciding between a mortgage recast and refinancing, it’s crucial to understand the key differences in terms of structure, cost, and flexibility. Below is a comparative breakdown:
Recasting a Mortgage:
- Process: Apply a lump-sum payment to the principal and adjust the remaining balance.
- Costs: Minimal fees (typically $100-$500).
- Interest Rate: Unchanged.
- Loan Term: Stays the same.
- Credit Check: Not required.
Refinancing a Mortgage:
- Process: Replace the current mortgage with a new loan, often to get a lower interest rate or change the term.
- Costs: High fees (closing costs, origination fees, appraisal).
- Interest Rate: May change to a new rate.
- Loan Term: Can be extended or shortened.
- Credit Check: Required to qualify.
| Feature | Recast Mortgage | Refinance Mortgage |
|---|---|---|
| Payment Reduction | Yes | Yes |
| Change in Term | No | Yes |
| Interest Rate Change | No | Yes |
| Upfront Costs | Minimal | Significant (up to 3-6% of loan amount) |
| Time to Process | Days | Weeks to months |
- Choose recasting if you’re happy with your interest rate and loan term and want to lower monthly payments quickly.
- Opt for refinancing if you seek a lower interest rate, want to adjust the loan term, or need to access cash through a cash-out refinance.
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