Mortgage Recasting: Can It Save You Money?

Kiah Treece is a small business owner and personal finance expert with experience in loans, business and personal finance, insurance and real estate. Her focus is on demystifying debt to help individuals and business owners take control of their fina.

Kiah Treece is a small business owner and personal finance expert with experience in loans, business and personal finance, insurance and real estate. Her focus is on demystifying debt to help individuals and business owners take control of their fina.

Kiah Treece is a small business owner and personal finance expert with experience in loans, business and personal finance, insurance and real estate. Her focus is on demystifying debt to help individuals and business owners take control of their fina.

Kiah Treece is a small business owner and personal finance expert with experience in loans, business and personal finance, insurance and real estate. Her focus is on demystifying debt to help individuals and business owners take control of their fina.

Rachel Witkowski is an award-winning journalist whose 20-year career spans a wide range of topics in finance, government regulation and congressional reporting. Ms. Witkowski has spent the last decade in Washington, D.C., reporting for publications i.

Rachel Witkowski is an award-winning journalist whose 20-year career spans a wide range of topics in finance, government regulation and congressional reporting. Ms. Witkowski has spent the last decade in Washington, D.C., reporting for publications i.

Rachel Witkowski is an award-winning journalist whose 20-year career spans a wide range of topics in finance, government regulation and congressional reporting. Ms. Witkowski has spent the last decade in Washington, D.C., reporting for publications i.

Rachel Witkowski is an award-winning journalist whose 20-year career spans a wide range of topics in finance, government regulation and congressional reporting. Ms. Witkowski has spent the last decade in Washington, D.C., reporting for publications i.

Updated: Nov 1, 2023, 4:52pm

Editorial Note: We earn a commission from partner links on Forbes Advisor. Commissions do not affect our editors' opinions or evaluations.

If you have enough extra cash in the bank to make a lump-sum payment and you want to reduce your monthly mortgage bill, mortgage recasting might be a good option for you. We’ll walk you through the mortgage recasting process, let you know which types of loans qualify and help you decide whether it’s the right fit for your financial needs.

What Is Mortgage Recasting?

Mortgage recasting is the process of reducing your mortgage balance through a lump-sum payment, and then making smaller monthly payments until you pay off your loan. Unlike mortgage refinancing, mortgage recasting does not change your loan term or your interest rate—you’ll simply have a lower monthly payment, but you’ll also save on interest payments over the life of the loan.

Say, for example, you recast a 30-year, $400,000 mortgage with $350,000 remaining by paying a lump sum of $100,000 five years after the loan was originated. Recasting the loan would involve amortizing the remaining $250,000 balance over the remaining 25-year term. Under these circumstances, the monthly payment—assuming a 3.5% interest rate—would decrease from $1,796 to $1,252 following the recast.

If your lender doesn’t offer recasting, you can make a lump-sum payment on your mortgage on your own. Doing so will decrease your loan balance, but your monthly payments will stay the same. Still, you’ll be able to pay off your loan early if you go this route.

How Does Mortgage Recasting Work?

Follow these steps to recast your mortgage:

1. Contact your lender to determine your eligibility. Not all lenders offer mortgage recasting, so it’s important to confirm availability with your lender before setting aside funds. What’s more, some types of mortgages (like those backed by the Federal Housing Administration and Department of Veterans Affairs) are not eligible for recasting. Your lender also will be able to tell you if your mortgage is eligible.
2. Save money for an extra payment. In addition to confirming that your mortgage can be recast, find out if your lender has a minimum lump-sum payment. This amount is typically between $5,000 and $10,000, but may be a percentage of your outstanding mortgage balance—usually up to 10%. Based on your lender’s mortgage recast requirements, save money for your lump-sum payment before continuing with the process.
3. Request to recast your loan. When you’re ready to proceed with the recasting process, submit a formal request to your lender. Note that many lenders charge a fee of up to $500 for recasting, but this fee varies. That fee is significantly lower than you’d pay to refinance your home loan. Once approved, make your lump-sum payment against your outstanding mortgage balance.
4. Continue making payments. After recasting your mortgage, your monthly loan payment will be lower based on the remaining balance. However, the recasting process can take weeks to complete once you’ve made your payment, and it’s important to continue regular payments in the meantime. Once you receive notification that your mortgage was recast, start making your newly calculated payments.

Types of Loans That Can Be Recast

If you want to save on your monthly payments—while keeping your current interest rate—mortgage recasting can be an excellent alternative to refinancing. That said, not all lenders offer the service and not all loans are eligible for recast. For example, conventional mortgages and jumbo mortgages can be recast, but FHA loans and VA loans cannot.