You know about refinancing. You know about mortgage modifications. But, have you ever heard of recasting? While it was once a popular way to adjust a home loan so borrowers could afford to make the monthly payments, recasting is now one of the best kept mortgage secrets. While recasting does not change the interest rate or the balance of the home loan, it does re-amortize your mortgage, which can potentially reduce your monthly payment. The catch is that it often costs the borrower money—sometimes as much as $5,000 in up-front fees.
How it Works
You first have to contact the bank or lender that holds your mortgage. Speak with someone in the loss mitigation department, similar to how you would if you were requesting a mortgage modification. Once the bank agrees to at least consider a recasting of your mortgage, you can enter into negotiations. Typically:
- You pay a lump-sum fee upfront (typically starts at $5,000, but is up to the lender);
- You also have to pay a lender fee, which is generally around $250;
- The lender then amortizes the mortgage based on the existing balance to change your monthly payments (this does not change the principal balance or interest rate).
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Benefits of RecastingRecasting is generally for a homeowner who cannot qualify for a refinance. For example, a self-employed individual that has good credit, but does not show enough income to qualify for a refinance may benefit from recasting. Recasting does not require credit checks or income verification, which a refinance does.
The primary benefit of recasting is that it corrects a financial situation that could end in foreclosure. If you have at least $5,000 in cash, you can save your home without going through the refinance process. You can also make your mortgage payments more affordable in the process.
When You Should Recast Your Mortgage
If your interest rate is low and you cannot qualify for a standard refinance, then recasting may be more beneficial than a refinance to lower your monthly mortgage payments. If you have a lump sum of cash that you can put toward recasting, the payment is applied to your principal balance. Then the mortgage company recalculates your mortgage payments based on the remaining balance for a set period, such as 20 years.
While recasting your mortgage is not something that the lender readily advertises, it is something that some lenders and banks are willing to do instead of allowing you to go into foreclosure. If you’re not in a position where you can refinance, but you have some money in the bank, inquire about recasting to save your home from foreclosure. The worst that the lender could say is no.
Since the recasting process is easier than a refinance, it typically occurs within one to two months of the bank agreeing to move forward with the process. It may be the difference between staying in your home and being forced out of it.
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