I am anxious to pay off our mortgage. We got the house 12/2013. Payments are about $3000/mo. Most (but not all) years I was able to pay abut $1000 a month extra towards principle and for two years was able to apply more than twice that toward the principle. Does it make sense to recast the mortgage? I was told I could do that once without any fees. Is there an advantage to doing that. I figure if I lower the monthly, I could take that savings and apply it toward the principle. Not sure if it would get me to my goal quicker, or not?

Thanks for any thoughts.

You are on the right track to debt reduction with the additional payments. Once you pay off the mortgage--you lose that deduction.
You are 9 years into your mortgage. Your principle payment > interest payment now.
At your current repayment schedule ($1K/month) plus extra--you are probably within 5 years of repayment.
Make sure your retirement is fully funded.

Compare it to the present rate you are paying vs the new rate.
They are about to go up, probably in a month or two so do it quick if you can with a locked in rate commitment.
I did a similar thing when I had my first house after the Jimmy Carter years or very high rates. They were on a steady trend downwards them so I got a much better rate each time and also shortened the term each time, 30-15-10.
Having a paid for home is a great feeling, not a shinny new car or boat, at least for me.

The better time would have been a year ago when rates were lower. In order to make a decision, you would have to compare amortization schedules of your current loan vs new loan and any closing costs. It's fairly straightforward if you have Excel or other spreadsheet software.

Really need more information before recommending any course of action.

What is your present interest rate and what is the best you can get on a refi?
- are you considering a shorter term?

How much longer do you have on your current payoff schedule (assuming increased principal payoff).

Adding extra principal payments to your regular monthly payments is always a good idea, particularly in the earlier stages of the loan.

The details are important. By paying extra you are in effect, decreasing your interest rate already. Usually refinancing has a cost of $2,000 - $6,000. So that exact expense is also needed to help answer your question.

From your statement of the monthly payment, $3,000, it certainly seems to be worthwhile to investigate. How much of the payment is the loan, how much is tax/insurance? How much remains to be paid?

A recast recalculates your payment (lowering it) after making a principal reduction. I don't think they generally extend the maturity, so even with the reduced payment, you are still paying interest on less principal over the same amount of time, so you will save some interest money. You'll save more if you just continue to make a larger payment each month, because you will be paying the loan off faster.

quote:

Originally posted by 220-9er:
Compare it to the present rate you are paying vs the new rate.
They are about to go up, probably in a month or two so do it quick if you can with a locked in rate commitment.

quote:

Originally posted by smlsig:
What is your present interest rate and what is the best you can get on a refi?
- are you considering a shorter term?

quote:

Originally posted by mr kablammo:
Usually refinancing has a cost of $2,000 - $6,000.

Many of ya'll seem to be confusing refinancing with recasting. The OP is talking about the latter (which is also known as a reamortization).

The interest rate doesn't change on a recast. The term doesn't get extended on a recast.

The only thing that changes is the amortization, based on the lower amount of principal still owed, and as a result the monthly payment goes down.


I'm not seeing a benefit for the OP here, unless he just wants to have the option of making a lower monthly payment as "shit happens" insurance, in case he needs to reduce his monthly expenditures in the future due to job loss/emergency expenses/etc. Otherwise, it doesn't appear to have any other benefits over merely making extra payments towards principal to pay it off early, like he's already doing.

Agreed with all - only thing that will help pay down faster is more total cash in or lower rate, or both.

Also be careful with an offer than includes "no fees". While they may not charge you those, you want to be sure none of them are rolled into the new loan amortization or coupled with any sort of early payoff penalty.

Thanks all, for your thoughts. That's what I was thinking. And, if I keep the extra payment toward to mortgage the same, maybe a bigger portion of the extra toward the principle would speed things along.

Thanks again!

In your situation, a recast will gain you nothing. Most banks require a minimum lump sum payment if at least $10k. Right now I am recasting a loan. We bought this house with 5% down. When our other house sold, we took the proceeds and are paying another 15% down. When they recast, it will lower my payment by both lowering the principal and removing PMI.

In your situation, I am assuming you don’t have PMI. You’re not putting down a large sum. No need to recast.

Now if your interest rate is above 3%-3.5%, refinancing may make more sense. You would have to weigh closing costs vs interest saved and see if it would make sense.

Wouldn't just leaving the higher or regular mortgage payment just effectively pay of the mortgage faster?
So why recast when you are making extra payments anyway?

I learned something today. I’ve never heard it called recasting. Had no idea what he was talking about. I’m sure it must make sense in some situations but I don’t see how it really helps in this one. Disclaimer I didn’t do the math so I could be wrong. I would love to hear an explanation of why this is a good idea.

it's a math equation. have to look at all the variables involved.

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quote:

Originally posted by jhe888:
A recast recalculates your payment (lowering it) after making a principal reduction. I don't think they generally extend the maturity, so even with the reduced payment, you are still paying interest on less principal over the same amount of time, so you will save some interest money. You'll save more if you just continue to make a larger payment each month, because you will be paying the loan off faster.

I've used recasting a couple of times. It's a mortgage company's best kept secret. I highly recommend. The new payment is calculated on the lower principal amount and thus it will lower interest payments over the life of the loan. In fact, I have two mortgages I plan to recast when a third property sells later this year.

https://www.bankrate.com/mortg...sting-and-why-do-it/

I still haven’t done the math but I’m still not sure it’s a great idea. I keep hearing you will pay less interest over the still same term of the mortgage which obviously makes sense. What doesn’t make sense to me is in the scenario where you use 50,000 dollars to reamortize. So you pay that amount up front, you pay whatever fees the banks charges and you still have the same terms, interest rate, number of payments, etc. So your interest over the remainder of note is less. Got it. In same scenario you take the 50,000 and make additional payments throughout the loan. In that scenario you keep the 50,000 in your hands in the event of you needing it and you also pay less interest because you will shorten the term.

I would be curious to know the delta in those two scenarios all else being equal. If I’m bored enough I might run them myself. I suspect the savings aren’t worth the downside. I like having cash on hand. The only no shit advantage is lowering your monthly cost but that’s similar to buying points. Well yea but at what cost?

Obviously I have never done this because I don’t think it’s a great idea at first glance unless you literally can afford the upfront payback but not the monthly cost. Which makes little sense to me.

Maybe I’m missing something obvious.

Ok I got bored and ran numbers. Public math so here goes.

Same scenario to start for both.
15 years left, 200,000 dollar mortgage left, 4% interest, 50,000 dollar pay down to recast.

In first scenario, you reamortize and pay roughly $49,715 dollars in interest over the next 15 years.

In second scenario you pay that same 50,000 dollars over the term. Which didn’t work because adding 278 to principal results in payoff 3 years early so you still have 10,000 dollars left over from your 50k. I tried to figure out the exact amount to put in to get to zero but my calculator programs aren’t that tailored. Either way here is the numbers. You pay off 3 years early, still have 10k of your 50k in cash and pay total interest of $51,896. That’s $2181 more in interest paid. This also ignores that your money could have been earning money the entire 12 years. That’s a lot of time to grow plus you still have ten grand left.

Public math is hard so I could have made an obvious mistake. On my quick glance math though I don’t see a massive benefit and actually think that 50k invested over time and paid out as additional payments is a much better proposition.

Standing by the be corrected on my bad math. Lol

It sounds like a good way to lower your monthly payments in a higher interest rate market but it requires you to have a bulk sum of cash to do it. That seems counter intuitive. If you need to lower your payment what are the odds of you sitting on a lump sum? Plus, unless my math is wonky, which is possible, it’s not a good deal anyway.

I think a couple of you are assuming the amortization schedule provided at loan origination, or the coupons for you fossils paying with those, and the interest/principle breakdown on those is static. It is not. The interest is computed on ACTUAL outstanding balances after each payment is made until the next one is paid, so any additional reductions are already reducing term and total interest cost without any other action needed.

All this talk of lowering required payments reducing interest is, well, puzzling. The math is as simple as it can be. The only variables affecting the actual interest paid on a mortgage is the principle outstanding from time to time and interest rate.

For example, if I'm making a $1,000 payment on a note with a balance of $100,000 and interest rate of 5% after the next most recent payment, the first $416.67 of that payment is applied to interest, the rest to principle. Next month, same math but on a principal balance now $99,416.67, so THAT payment first $414.24 to interest and so on.

If I make a $50,000 additional principle payment along with the first payment above, then my new principle balance for that second payment is instead $49,416.67. A month of interest on THAT is going to be only $205.90. Unless I recast or refinance my required payment doesn't change, but the interest cost over remaining term will be way less and the time to zero also much shorter due to the principle reduction. All OP and others is talking about is doing that regularly and in small bites rather than one lump sum.

I'm concerned the OP still doesn't see that. As several have stated, unless he can reduce his interest rate, no other action besides increased principle payments will make a difference. Doesn't matter if your "required" payment is $50 for 50 years or $500 for 15, if you're paying $1,000 in both scenarios the interest cost is the same over time as long as the starting point for principle balance and rate is the same.

Only possible reason for a recast, assuming it's actually free, is if you need to reduce required payments due to cash flow needs or to better position you for other loan qualification in addition to the mortgage.

Plus that lump sum is actually available to you in an emergency and if it’s invested it will in all probability grow over the term of the loan while you pull off it to make additional principal payments.

I’m not seeing an advantage here at all. As for a bankers best kept secret, well I don’t know about that, reamortization isn’t a new concept. Bankers have lots of tools and they aren’t all a good idea. ARM’s used to be sold as the best thing since sliced bread. Umm, not so much. If I’m going to gamble I at least want free drinks.

I did it for mine. Nothing changes about your load except that your new mortgage payment is calculated based on your current principal balance paid over remaining term on the mortgage.

For me it was a no brainer decision. Nothing changes at all and I have the option to pay less if I want to. I can any month I want or for the rest of my mortgage lower my payment to the minimum payment if times get rough or if I decide to use the house as a rental.

The only downside to doing this would be that your would stop overpaying your mortgage and blow that money on SIGs and ammo. As long as you don't change your current payment amount you are just gaining flexibility should you need/want to pay less towards the mortgage. Either way the interest savings is from you prepaying the mortgage, not from reamortizing the mortgage.