Are you a Real Estate Investor or home buyer looking for ways to save money on your mortgage? If so, you may be interested in learning about the concept of recasting mortgages. Recasting mortgages is a strategic mortgage repayment method that enables borrowers to reduce their monthly payments by paying down part of the principal balance – without having to refinance their loan.
At MY SMART COUSIN, we understand the challenges of finding, financing, and even refinancing a house for you and your family, or purchasing an investment. We are an experienced Real Estate Investment coach who can help you weigh the pros and cons of various paths, and implement them with confidence. We specialize in helping new and aspiring real estate investors, particularly Black and Brown folks and women, buy and manage their first property, and buy a house for the price of a car.
In this blog post, we’ll dive deep into what’s involved with recasting mortgages and how you can potentially benefit from them. We’ll also look into how to calculate a recast and explore some important pros and cons of this financing option. So if you’re tuned in and ready to learn more, let’s get started!
WHAT IS A RECAST MORTGAGE AND HOW DOES IT WORK?
The idea of a Recast Mortgage is pretty straightforward: you pay more toward the balance on your remaining loan payments, which reduces the principal. Now here’s where it gets interesting – that reduction means your monthly payment amount will go down.
Generally, in order to benefit from a recast mortgage, you have to make a lump sum payment of anywhere from $5,000 to $20,000 or more, depending on the size of your loan. You must also be up‐to‐date with all regular payments, or the lender won’t consider recasting.
However, if this is something you can do, then in no time you could potentially lower your interest rate and start seeing some real savings. Plus, this process allows you to keep the same terms of your existing loan so that any additional tax breaks due from it still apply. It really can’t get much better than that!
HOW TO CALCULATE A RECAST MORTGAGE?
Even if you’ve never heard of a recast mortgage, you may want to consider learning how to calculate one. With a recast mortgage, you can refinance your loan without actually refinancing–meaning you don’t have to go through the same lengthy process to get better terms on your loan.
Calculating your recast mortgage repayment is simple. All you need to know is your existing balance and the principal amount of your extra payment. Then, subtract the extra payment from the existing balance and use that as the new balance for terms that better suit your needs. It’s an easy, stress-free way to get more out of your mortgage!
THINGS YOU SHOULD KNOW BEFORE OPTING FOR A RECAST MORTGAGE
Before you consider recasting your mortgage, there are some important points to keep in mind. While it can provide lower payments and more financial flexibility over the long haul, it’s not a decision to be taken lightly.
· First, talk with your lender as they may have their own specific requirements that need to be fulfilled before they agree to recast your mortgage.
· You’ll also want to make sure you understand any fees associated with the process, as these often can add up quickly.
· Finally, if you’re considering taking out extra money or increasing the size of your loan when you recast, be aware that this may put added strain on the rest of your finances. Evaluate your budget and the source of funds you will use to make the down payment, and e sure that you will still have access to emergency funds should an emergency occur.
Overall, if done correctly, recasting could potentially prove to be an invaluable resource for those who find their current mortgage payments too high and are looking for relief.
PROS AND CONS OF RECASTING YOUR MORTGAGE
Recasting your mortgage can be a good idea if you have some extra cash to dedicate towards your monthly payments, as it can significantly reduce the time until what really is a generation-long loan— 30 years— is paid off. It may also lower the amount of interest that will accumulate given the shorter tenor, and save you some money in the long run.
However, it’s important to look out for fees such as closing costs, as they may counteract any potential savings. Additionally, recasting isn’t available with all lending institutions, so it’s important to do your research and check what your current lender offers. If done correctly, recasting can be a great way to pay off your mortgage sooner than expected, with no refinancing or requalification processes.
WHEN IS THE BEST TIME TO RECAST YOUR MORTGAGE
Trying to figure out when the best time is to recast your mortgage can be daunting, however, it can be a great way to save tens of thousands of dollars in interest over the life of a loan.
Before considering recasting, it’s important to look at ways to lower your existing mortgage payments without increasing your loan amount or term.
Paying off any credit cards that have higher interest rates first should be prioritized as this could help reduce monthly payments more than a mortgage recast would. Said another way, the cost of money with a credit card is 25% or even more, versus the cost of money with a mortgage at 7% to 8%. If you have a large credit card balance, say $10,000 or more, and are making minimum monthly payments, you are better served to pay off your credit card debt rather than recasting your mortgage.
In terms of timing, experts often urge homeowners in a strong financial position to look into recasting after 12 months or more post the closing of their home, when they are more likely to have some extra cash saved up to cover the costs. Depending on lender policies, there may also be opportunities for recasting after reaching equity milestones such as 20% or 30%. Ultimately, when considering whether now is the right time for you to invest in a mortgage recast, research what options are available from the lender and do some number crunching before making any hard-and-fast commitments.
ALTERNATIVES TO A RECAST MORTGAGE
If you’re feeling financially strained and are not sure how to lower your mortgage payments, there are a few alternatives to a recast mortgage that could be worth looking into.
· One option is to refinance your loan, which could reduce the interest rate and monthly payments on your current loan by getting a new loan with better terms.
· Another solution is a loan modification, which often includes lowering the principal balance or changing the length of the loan, allowing for more manageable payments.
· Additionally, you may want to look into subsidizing, where lenders agree to provide forgiveness on certain parts of the loan in exchange for an upfront payment from you, in order to help alleviate some of your financial stress.
All three options could be beneficial, so it’s worth exploring each one carefully before deciding what path is best for you.
FINAL THOUGHTS
So, is a recast mortgage right for you? Now that we’ve armed you with the basics of the recast mortgage is structured, begin exploring whether it’s the right financial option for you. As part of your due diligence, keep in mind that there may be other alternatives to consider before making your final decision. MY SMART COUSIN can help walk you through all of your options so that you can make an informed choice about your next steps. Ready to get started? Til then, Happy Hunting!
YOU CAN ALSO READ: WHAT IS A SPLIT-LEVEL HOUSE AND SHOULD YOU INVEST IN ONE?
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