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Most of the homeowners are under the belief that they can only modify their mortgage through the refinancing process and lower their monthly payments. But all the time you have to fill out a lot of paperwork, pay fees, and undergo credit checks to see your loan refinanced, there is also a little known alternative that would enable you to get the same results without all those. This option is referred to as mortgage recasting. The knowledge of the process and the ability to see whether it suits your financial needs can save you time and money throughout your loan term.
Introduction to Mortgage Recasting
Mortgage recast enables you to reduce your monthly payments through a one time huge payment with the principal loan balance. A payment made to your lender will result in a calculation of your new monthly payments based on the new, smaller principal amount, but your current interest rate and loan period will remain unchanged. Basically, you are maintaining the same mortgage but managing the payment schedule to the current balance which is lower.
This strategy is especially attractive to those homeowners who have just acquired a lump sum of money (through a bonus, inheritance or selling their property). Instead of going through the pain of refinancing into a new mortgage, recast will enable you to stick with your current mortgage conditions and still enjoy lower monthly payments. The procedure is easy, fast, and in most cases it does not attract high charges as compared to refinancing.
Advantages of Recast Selection
The primary benefits of recasting a mortgage are that you will be able to reduce your monthly payments without the need to take out a new loan. You do not have to risk the loss of a good rate you might have negotiated in the past since the interest rate and terms of your current mortgage would not change. This can be more so useful when the rates in the market have been more than when you initially borrowed the mortgage.
Moreover, the process is usually associated with the low administrative costs. Largest lenders apply a minor recasting fee which in most cases is significantly lower than the closing expenses of a refinance. The other benefit is that recasting does not necessitate an appraisal or credit check and as such it is more open to home owners who might not qualify in existing refinancing requirements. This is why it is a useful alternative to the individuals who want to maintain cash flow without the complexity of an extra feature.
When to Consider a Recast
A recast is most appropriate when the homeowners are able to make a huge sum of money as payment of their principal but they are not required to adjust the interest rate or the term of their loan. Specifically, it is beneficial when you have a large amount of cash flow, which includes selling a property or getting a financial windfall. Using a lump sum on your mortgage, you can instantly pay off the mortgage and consequently pay less in the future.
But when you want to pay less interest or trade an adjustable-rate mortgage with a fixed-rate one, it can be better to refinance your mortgage. The answer to that question lies in the long-term targets and financial situation. It is possible to discuss with a mortgage broker Mississauga and to know what you can do and what option will suit you better in terms of your present requirements and future applications.
Comparing Refinancing and Recasting
Even though both recasting and refinancing allow mortgage payments to be lowered, they do it differently. Refinancing replaces your current loan with a brand new loan, possibly of a different interest rate and loan term. This may be handy when the rates have gone down remarkably since the time when you took your initial mortgage, and it also comes with closing fees, credit investigation, and possible delays. Recasting, however, gives you the ability to keep your original loan, and merely shave the loan down to a smaller amount.
Recasting is the cheaper option in most cases with the homeowners who already have a low interest rate. It provides you with the option of making lower payments without making the loan term longer or re-setting the amortization schedule. Not every lender, however, provides recastin and some loans such as FHA or VA loans might not. Before making the decision it is best to ask your lender whether such an option exists.
A less recognized but powerful financial instrument that can be of great help in terms of savings and flexibility is mortgage recasting. It enables home owners to make their mortgage easier without incurring the expenses and hassles of refinancing. Recasting can be an excellent option in terms of getting the lower payments but at the same time have the option of retaining the current benefits of your loan in case you are in a position to afford a huge amount in settling your principal. You should make the most out of this opportunity by first reviewing the policies of your lender before a final decision is made and consulting a mortgage professional.