When it comes to home finance, your monthly mortgage payment probably tops the list of important factors. For those who have some equity stored up in their home, it may even be tempting to refinance your mortgage to get a better rate. However, there is another option for the homeowner who simply wants to get their mortgage payment paid off.
Here are three key differences between recasting mortgage payments versus traditional refinancing:
Length of loan term
When you refinance your monthly payments, you’re essentially entering into a new loan agreement with a mortgage lender. This can directly impact the length of your mortgage, drawing out the loan repayment term over an agreed upon length of time. When you recast your mortgage, however, you aren’t extending your mortgage payment.
Recasting your monthly mortgage payment simply means you keep your current loan repayment date. You only lower the payments for the life of your current mortgage.
Monthly payments
While decreasing your monthly payments seems great, there is one crucial point to recasting: you must repay a lump sum of your loan balance to qualify for mortgage recasting. Once you pay that lump sum, your monthly payments decrease based on the remaining principal of the loan.
With refinancing, you can decrease your monthly payments by taking out a new loan for the remaining balance. This is often done once you’ve stored some equity in your home by making your original mortgage payments. You may even receive new interest rates, furthering your lower monthly payment.
Interest rates
Interest rates are another key factor to consider when recasting your mortgage. For example, if you’ve received an excellent interest rate with your original mortgage, that interest rate will not change, even if your mortgage payments do. However, if your interest rate is higher than desired, you’ll still need to pay the same interest rate.
Since refinancing is typically a different loan, your lender may offer a different interest rate to be paid with your new mortgage loan. Your new monthly obligation will reflect that interest rate as you begin to pay your new loan.
Determining whether recasting your mortgage or refinancing it is the best option depends on your financial goals and obligations. However, if you’re interested in making your monthly payments more manageable, try talking to your loan provider. They may be able to offer a few places to begin your new repayment journey.
About the Author
Kyung Kim
Hi, I'm Kyung Kim. I immigrated from South Korea to the United States in 1968 when I was 7 years old. I have seen my mom struggle with the English language and work hard to raise her four kids by herself. Still to this day, I don't know how she pulled it off, but she bought her first home in 1979 for $70,000 and because of that decision, she was able to live without worrying about her financial future. I want that for everyone, to feel the pride of home ownership and to build their financial wealth using real estate as part of their financial portfolio. I feel so blessed to play a small role in helping others reach this goal.
I live in Beaverton with my husband, Richard. My mom, who lived with us for several years, passed away in our home in February 2022. Her first home purchase in 1979 made it possible for her to live to the very end, without worrying about her finances. As of August 2022 with a little downpayment assistance, our four children own their own homes. Being in real estate, I quickly realized that if they didn't buy now, they may be priced out of the market in the future. Whether that would have been the case, we will never know, but what we do know is that they are all realizing some good, healthy appreciation in their home values.
As passionate as I am about people owning their homes, I'm also passionate about giving back to our community. I support Compassion First, a non-profit organization that provides aftercare for sex trafficked girls in Indonesia. My husband and I also feel called to financially support social injustice organizations.
I'd love to assist you. Whether you're in the research phase at the beginning of your real estate search or you know exactly what you're looking for, you'll benefit from having a real estate professional by your side. I'd be honored to put my real estate experience to work for you.
