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“Is Recasting Your Mortgage the Right Financial Move for You?”

By WesPointOfView
Recasting a loan is a financial strategy that can offer an ideal solution for individuals who have a significant amount of money available to put towards their loan but are uncertain about future income changes. This approach enables borrowers to save on interest expenses without incurring a higher monthly payment.
However, it’s important to note that recasting a mortgage does have its downsides. Unlike refinancing, which allows for the possibility of obtaining a lower interest rate or a shorter loan term, recasting does not offer these benefits. If your current interest rate is already low or lower than prevailing rates, much of the advantage of refinancing may be negated.
Now let's explore the pros and cons of recasting a mortgage
Pros:
  1. Lower monthly payment: Recasting a mortgage can result in a reduction of monthly payments, making it more manageable for borrowers.
  2. Simpler and cheaper than refinancing: Recasting does not require applying for a new loan, which simplifies the process and avoids associated fees and closing costs.
  3. Maintain current interest rate: With recasting, borrowers can keep their existing interest rate, potentially saving money compared to obtaining a new loan with a higher interest rate.
  4. Save on interest over the life of the loan: By lowering the outstanding principal balance through a lump sum payment, borrowers can significantly reduce the total interest paid over the duration of the loan.
  5. Costs money: While recasting a mortgage comes with advantages, it’s essential to mention that there may be fees associated with this process.
Cons:
  1. Not available with all loans and lenders: Recasting options may be limited depending on the type of loan and the lender’s policies. It’s important to check with your specific lender to determine eligibility.
  2. Requires a large sum to recast: To recast a mortgage, borrowers typically need a substantial amount of money to make a lump sum payment towards the principal balance.
  3. Funds tied up in home could be used elsewhere: By utilizing a significant amount of money for recasting, borrowers may have reduced liquidity and potentially miss out on other investment opportunities or financial goals.
In summary, a mortgage recast can lower monthly payments without the need to apply for a new loan, and the associated service fees are relatively low. It provides a straightforward method to allocate extra funds towards the principal balance and enjoy immediate cost savings for the remainder of the loan term.
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