https://www.youtube.com/watch?v=0rmjc7Y_5D4

1. Introduction:

2. What is Mortgage Recasting?

3. Example of Recasting:

4. Recast Calculator:

5. Steps to Recast Your Mortgage:

  1. Request a Recast: Initiate the process with your lender, who may not proactively offer this service.
  2. Make a Lump Sum Payment: Determine the minimum required amount with your lender. Higher payments result in lower future monthly payments.
  3. Pay a Servicing Fee: While not typically free, the cost for recasting is relatively low (around $100-$500).
  4. Move to New Repayment Schedule: The loan is re-amortized with new monthly payment details.
  5. Allocate Saved Funds: Consider using the extra funds for other financial goals or personal enjoyment.

6. Ideal Candidates for Recasting:

  1. Those who sell a home and want to apply the proceeds to a new mortgage.
  2. Individuals receiving a windfall or inheritance.
  3. People who save or earn extra money specifically to reduce their mortgage.

7. Recasting vs. Refinancing:

8. Pros and Cons of Mortgage Recasting:

9. Conclusion:

  1. Mortgage recasting can be a viable strategy for those looking to reduce monthly payments and interest without altering the loan term.
  2. The host encourages viewers to share their experiences and thoughts on mortgage recasting.

10. Sign-Off:

  1. The host, Andy Hill from Marriage, Kids, and Money, concludes the segment, emphasizing personal finance's unique nature and the potential benefits of mortgage recasting.

You paid off your credit card debt, you slashed your student loans. The only thing left between you and debt freedom is paying off your mortgage. One of the most commonly talked about tools for paying off your mortgage early is refinancing. Let's explore a less common tool that can be just as powerful - recasting your mortgage.

After learning what mortgage recasting is and investigating how recasting is different from refinancing, we'll dig into the pros and cons of recasting your mortgage to help you decide if this real estate strategy is right for you.

But before I do, please consider giving me the YouTube triple thanks - that's hitting the like button, subscribing to the channel, and commenting down below. I appreciate you considering it as I'm looking to grow this channel. Thanks!

Okay, what is recasting your mortgage?

Well, one of the most popular topics on Marriage, Kids, and Money is paying off your mortgage early. It makes sense; after all, this is an incredible step towards living a debt-free life and it can help you even become a millionaire. So how do you do it? Well, there's no one method to paying down your mortgage debt, but a mortgage recast can definitely help. In fact, a mortgage recast can reduce what you pay in interest and slash your monthly payment amounts. Sounds pretty good, right?

To recast your mortgage, you will need to make a large payment on the principal of the loan. After that, your mortgage lender re-runs your mortgage numbers in what's called a re-amortization. The re-amortization or new repayment schedule should lower your monthly payments.

To illustrate how this works, let's use some very simple math:

You originally had a five hundred thousand dollar mortgage that charges three percent interest for thirty years. That means you pay twenty-one hundred and eight dollars each month. Now you recast by putting a lump sum of fifty thousand dollars toward your principal. That drops your payments to $1,897 per month, which means you're paying over $200 less per month for the entire life of your loan.

To learn more about how a recast situation would work in your situation, you can use a recast calculator online.

For example, let's do this: I'll put in some of my details for my previous mortgage situation. We got a house with a $195,000 mortgage at a three percent interest rate. Our principal and interest payment was around thirteen hundred dollars. This didn't include our taxes and insurance, by the way. We ended up selling our previous house after we bought the new house and we pulled in around thirty thousand dollars from the sale. Let's say we use that to recast our mortgage, and we'll say that the recasting fee is 300 bucks. We calculate, and voila! The recast takes our mortgage down by two hundred dollars per month, and our overall savings is around seven thousand dollars during the life of our loan, and this includes the recasting fee. Pretty sweet, right?

Okay, let's talk through the mortgage recasting steps. If you qualify, you can actually recast your mortgage in a series of simple steps by working with your current lender. Here's step one:

  1. Request a recast: In some instances, if you've already been making extra payments to shave down the balance of your loan, your lender might reach out to you about doing a recast. More likely, though, you will have to initiate the process. Some banks and lenders advertise the service, but not many do. That means you might be able to click through the mortgage dashboard to find out more information with your lender. In other cases, you'll need to contact your lender by chat or by phone to learn about their specific process.

Step two:

  1. Make a lump sum payment: After you start the recast process, your lender will typically ask you to make a lump sum payment. Some lenders have a specific dollar amount that you have to pay as a minimum requirement. Others, they don't. Keep in mind that the more you pay, the lower your principal balance drops. That then means that you can expect smaller monthly payments for the life of the loan.

Step three:

  1. Pay a servicing fee: While it's not impossible for a recast to be done for free, it's highly unlikely. Depending on your lender, you can expect to pay anywhere from one hundred dollars to five hundred dollars for a mortgage recast.

Step four:

  1. Move to your new repayment schedule: After your recast is complete, your loan will be re-amortized. That's a fancy way of saying that you'll get a new payment schedule reflecting the amount of money you'll need to pay each month. Know that it's important to keep paying your regular mortgage payment amounts until you know for certain that the re-amortization takes effect. You haven't come this far only to get hit with a big penalty.

Step five:

  1. Put your money to work: Now that you've done a recast, you can start to plan for the extra money that you freed up. Maybe it means replenishing an emergency fund or growing a sinking fund for future expenses. Perhaps you're ready to get started with investing, or maybe you're going to take a vacation to celebrate this big victory. Whatever you decide, make sure it aligns with your financial plans and your values.

So, who might recast?

Recasting your mortgage is a real estate strategy just about anyone could use, especially if you hit one of these situations:

Well, you may be asking yourself, how is mortgage recasting different from refinancing?

In a recast, you pay extra towards your mortgage principal, dropping the monthly payment amounts of your mortgage for the remainder of your loan. By recasting your mortgage, you pay less interest over the life of the loan, and your recalculated payments are smaller. However, this recast is done with your existing loan, and that means the interest rate is unchanged.

Conversely, refinancing your mortgage involves taking out a new loan. After you apply for a new loan, this replaces your existing mortgage loan. Because your new loan is smaller, your payments should also decrease. Refinancing is often used when mortgage interest rates drop significantly. For instance, maybe you purchased your home with a 30-year mortgage at a 4% interest rate. After several years paying on the loan, interest rates plummet, and you could then refinance into a new loan to take advantage of dramatically lower interest rates.

So, what are the pros and cons of recasting your mortgage?

Let's start with the pros:

Pros:

  1. Lock in a lower payment: What would you do with another two hundred dollars, four hundred dollars, or even an extra six hundred dollars per month? Depending on how much money you put towards your balance, you could free up hundreds and hundreds of dollars each month. That means you can work on other goals on your debt freedom journey.
  2. It's easier to qualify: If it's been a while since you took out your mortgage, or you simply blacked out the ordeal from your mind, let me remind you that qualifying for a mortgage is a lot of work. You have to prove employment and income, and lenders do a deep dive into your assets, so you have to document where it all came from. Your credit score and your history are evaluated. Recasting is not nearly as involved. Usually, it only involves requesting a recast and being able to make a lump sum payment.
  3. Cheaper than refinancing: Refinancing your mortgage is much more expensive than recasting. While the amounts depend on many variables, including your lender, most mortgage recasts only cost a couple of hundred dollars.

Now, let's talk about the cons of recasting your mortgage:

Cons:

  1. There's usually a fee: There is a cost. Recasting your mortgage is not usually free, albeit it generally isn't very costly either. Still, some people prefer to avoid these fees and simply add to their monthly regular payments.
  2. Eligibility issues: Recasting generally applies to conventional loans, like a 15-year or 30-year mortgage from a bank or other lender. That means if you have a government loan like a VA or an FHA loan, you can't recast. The same is usually true for jumbo loans from lenders as well.
  3. Timeline doesn't change: It's important to note that most recasts will not change the length of your loan. Your payments will be smaller, and you will pay less interest. However, you still have a 15-year or 30-year mortgage.

In closing, as with all things in personal finance, there is no one-size-fits-all solution to paying off your mortgage or even growing your wealth and becoming a millionaire. However, recasting your mortgage could certainly be a real estate strategy that fits your financial goals. If you're looking to free up some extra money each month and save on interest for a small fee, reach out to your lender to see if a recast option is right for you.

But enough for me, I'd love to hear from you. Are you working on becoming mortgage-free? What do you think of the idea of recasting your mortgage? Please let us know in the comments below. This is Andy Hill from Marriage, Kids, and Money, signing off. Carpe diem!"