Should You Refinance or Recast a Loan?


Refinancing your mortgage can be a smart way to reduce your interest and lower your costs — or even pay off your loan sooner. But it’s not the only way.

A mortgage recast could also help you achieve some of those goals. It might also be simpler and more affordable than a refinance, depending on the circumstances.

The right strategy depends on your goals, budget and financial situation. Not sure which is the best move for you? Learn the similarities and differences between these two processes.

What is refinancing?

A refinance replaces your existing mortgage with a new one. It requires you to apply for the new loan and get approved. You’ll also have to pay closing costs again.

The big benefit here is that you get all new loan terms, which might mean a lower interest rate or a change in the length of your loan. Choosing a longer term (for example, a 30-year loan) would mean lower monthly payments, while a shorter term would help you pay off the loan sooner.

What is recasting?

Recasting your home loan essentially means asking your servicer to recalculate your payment schedule. There’s no application or closing costs required, though sometimes there’s a small fee.

You’d typically do this after you put in a large lump sum payment (maybe a tax return or inheritance) or if you’ve been making larger-than-necessary monthly payments for a while.

When the servicer recasts your payment schedule, it will result in lower monthly payments. Another perk? Making extra or lump sum payments may also mean paying less in interest in the long run.

Both of these methods have their place. Do you need help choosing the right strategy? Get in touch for a referral to a qualified loan officer.

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