What is Mortgage Recasting and How Does It Work?
Mortgage recasting, or re-amortization, is a process where your lender recalculates your monthly mortgage payment based on a new, lower principal balance. This happens after you make a significant lump-sum payment toward your principal. Unlike a standard extra payment, which simply shortens your loan term, recasting adjusts your payment schedule for the remainder of your original term.
Your interest rate and the loan's maturity date do not change. The only thing that changes is the required monthly payment, which becomes smaller because you're paying off a smaller balance over the same period.
A Miami Jumbo Loan Example
Imagine you purchased a luxury condo in Miami with a $1.2 million jumbo loan on a 30-year term at a 6.5% interest rate. Your monthly principal and interest payment would be approximately $7,585.
Five years into the loan, you receive a $200,000 bonus. Your remaining principal balance is around $1,135,000. You decide to apply the entire bonus to your mortgage and request a recast. Here’s the breakdown:
- Original Balance: $1,200,000
- Original Payment: $7,585
- Lump-Sum Payment: $200,000
- New Principal Balance: $935,000
Your lender recalculates the loan based on the new $935,000 balance over the remaining 25 years of your term. Your new monthly principal and interest payment would drop to approximately $6,245. You just freed up over $1,300 in monthly cash flow without the hassle of a full refinance.
Recasting vs. Making an Extra Principal Payment
It's crucial to understand that recasting is fundamentally different from just sending your lender a large check. Both actions reduce your principal balance and the total interest you'll pay over time, but they achieve different primary goals.
Making an Extra Principal Payment: When you make an extra payment without formally requesting a recast, your lender applies it directly to the principal. Your required monthly payment remains the same. The benefit is that you pay off your loan much faster, shortening the amortization schedule. You build equity quicker and save on total interest, but you don't get immediate monthly payment relief.
Recasting Your Mortgage: When you recast, you get the benefit of the principal reduction and a lower required monthly payment. Your loan term stays the same, but your monthly financial obligation is reduced. This is the preferred option for borrowers whose primary goal is to improve their monthly cash flow.
The Costs of Recasting a Jumbo Loan in Miami
One of the most attractive aspects of recasting is its low cost, especially in a high-value market like Miami where jumbo loan balances are substantial. Unlike refinancing, which involves a complete new loan application and associated closing costs, recasting is a simple administrative modification to your existing loan.
Typically, the fee for recasting a mortgage is a flat administrative charge set by the loan servicer. This fee usually ranges from $150 to $500. (The data, information, or policy mentioned here may vary over time.) There are no appraisals, title searches, or origination fees involved. It’s a straightforward transaction that reflects the lender's cost to process the paperwork and generate a new amortization schedule.
Why Recasting Beats Refinancing in Naples
For homeowners in affluent areas like Naples, where jumbo loans are common, the cost difference between recasting and refinancing can be staggering. Refinancing requires you to pay closing costs that are typically 2% to 5% of the new loan amount. (The data, information, or policy mentioned here may vary over time.) On a jumbo loan, this is a significant expense.
Let’s compare the two options for a homeowner in Naples with a remaining mortgage balance of $1.5 million.
Scenario: Refinancing a $1.5M Jumbo Loan
Assuming closing costs are a conservative 2% of the loan amount, the expenses would include:
- Origination Fee (1%): $15,000
- Appraisal Fee: $1,000 - $2,000
- Title Insurance: $3,000 - $5,000
- Attorney/Closing Fees: $1,500
- Other Miscellaneous Fees: $1,000
Total Estimated Refinancing Cost: $21,500 - $24,500
Refinancing only makes financial sense if current market interest rates are significantly lower than your existing rate, allowing you to recoup these high upfront costs over time.
Scenario: Recasting a $1.5M Jumbo Loan
If the same Naples homeowner receives a $300,000 inheritance and decides to recast their loan, the cost is simply the lender's administrative fee.
Total Estimated Recasting Cost: $250
By choosing to recast, the homeowner saves over $20,000 in immediate costs, keeps their potentially favorable original interest rate, and still achieves the primary goal of a lower monthly payment. This makes recasting a powerful and financially efficient strategy.
Do All Jumbo Lenders Offer Recasting?
This is a critical point: not all lenders allow mortgage recasting. Because jumbo loans do not conform to the guidelines set by Fannie Mae or Freddie Mac, the rules are dictated entirely by the individual lender or loan servicer. Many smaller banks or credit unions may not have a policy or the internal infrastructure to handle re-amortization requests.
Furthermore, some loan types are generally ineligible for recasting, including:
- FHA Loans
- VA Loans
- USDA Loans
Before you get too far into the planning process, your first step should always be to contact your current loan servicer directly. Ask them two specific questions:
- 'Do you offer mortgage recasting or re-amortization on my type of jumbo loan?'
- 'If so, what is your minimum required lump-sum payment and what is the administrative fee?'
Getting a clear 'yes' is the essential first step before proceeding.
The Minimum Lump-Sum Payment to Recast
Lenders that do offer recasting will have a minimum requirement for the principal reduction payment. They won't go through the process for a small amount, as it wouldn't make a meaningful difference in the monthly payment. This minimum can be a flat dollar amount or a percentage of your remaining balance.
Common minimums include:
- A flat amount, such as $10,000 or $25,000.
- A specific number of future monthly payments (e.g., the equivalent of 6 payments).
- A percentage of the outstanding principal, such as 10%.
For jumbo loans in Miami or Naples, where balances are high, the minimum is often on the higher end of this spectrum. Always confirm the specific requirement with your servicer. (The data, information, or policy mentioned here may vary over time.)
Does Recasting Change Your Interest Rate?
No. Recasting does not change your interest rate or any other terms of your original loan agreement, aside from the principal balance and the resulting monthly payment calculation. Your loan maturity date remains the same as well.
This is a major advantage, especially if you secured your jumbo loan when interest rates were low. If current rates are higher than what you have, refinancing would force you into a more expensive loan. Recasting allows you to lower your monthly payment while protecting your valuable low interest rate.
How Recasting Affects Your Amortization Schedule
When you recast your mortgage, your lender generates a brand-new amortization schedule. This schedule reflects the lower principal balance being paid off over the remaining years of your loan term.
Here’s how it impacts your loan's financial trajectory:
- Lower Monthly Payments: As shown in the examples, this is the most immediate effect.
- Less Total Interest Paid: The large lump-sum payment drastically reduces the principal that is accruing interest. While the rate is the same, the amount of interest you pay each month and over the rest of the loan's life is significantly lower.
- Same End Date: Your 30-year loan remains a 30-year loan. If you recast at year five, you still have 25 years left until it's paid off. This is different from refinancing, which typically restarts the clock on a new 15 or 30-year term. If you've received a cash windfall and are exploring ways to lower your jumbo loan payments in Florida, it's essential to weigh all your options. Understanding the nuances between recasting and refinancing can save you tens of thousands of dollars. Connect with a knowledgeable mortgage advisor to determine the most strategic path for your financial future.
If you believe recasting your jumbo loan aligns with your financial goals, our advisors can help you navigate the process. Take the first step towards a lower monthly payment by starting your application now.
Author Bio
David Ghazaryan is the expert mortgage strategist and founder behind iQRATE Mortgages. With a mission to fund home loans that traditional banks won't touch, David specializes in helping clients with unique financial situations, including those recovering from foreclosure or bankruptcy. He expertly crafts smart, strategic, and stress-free mortgages by leveraging a vast network of over 100 lenders to secure competitive rates for investors and homebuyers alike. Praised for exceptional customer service, David has helped hundreds of families with a 97% satisfaction rate, guiding them to the mortgage they deserve.
References
Consumer Financial Protection Bureau (CFPB) - What is a mortgage recast?
