Recasting vs. Refinancing: Which Mortgage Option is Better?

https://www.youtube.com/watch?v=KR5kNzapcVw

The provided text discusses the important financial decisions of paying off a mortgage and explores the options of recasting and refinancing a mortgage. Here is a detailed summary:

Introduction
- Paying off a mortgage is a significant financial milestone, whether it's done on schedule or ahead of time.
- The text introduces the debate between recasting and refinancing as strategies for managing mortgages.
Recasting vs. Refinancing
- Recasting involves recalculating the mortgage payment schedule based on the remaining loan balance and term. It can potentially lower monthly payments if extra payments have been made or if a lump sum payment is planned.
- Refinancing, on the other hand, means changing the terms of the mortgage by taking out a new loan to pay off the existing one. This can include altering interest rates, payment terms, and loan duration.
- Refinancing is often used to take advantage of lower interest rates in the market.
Pros and Cons of Recasting
1. Pros:
  - Recasting reduces monthly housing expenses, providing flexibility in your budget.
  - No need for home appraisal or credit check.
  - Simplified process compared to refinancing.
2. Cons:
  - Cannot modify the actual terms of the loan.
  - Some lenders charge a recasting fee.
  - Not all loans qualify for recasting (e.g., VA or FHA loans).
Pros and Cons of Refinancing
1. Pros:
  - Options to shorten the loan term, reduce monthly payments, pay less in interest, and gain better control over payments.
  - Provides flexibility to match changing financial situations.
  - May switch from adjustable-rate mortgages to fixed-rate mortgages.
2. Cons:
  - Refinancing costs money (typically 2-5% of the loan amount).
  - Potential reduction in home equity with a cash-out refinance.
  - Higher monthly payments with shorter loan terms.
Comparing Recasting and Refinancing
- Recasting and refinancing are not the same. Recasting primarily affects monthly payments, while refinancing can alter various aspects of the loan.
- Choosing between recasting and paying down the principal depends on the loan structure, lender policies, and individual preferences.
Conclusion
- Flexibility is crucial in homeownership since financial circumstances and goals evolve over time.
- Both recasting and refinancing are valuable strategies for becoming mortgage-free faster.
- Credible is recommended as a partner for refinancing options.
Final Thoughts
- The text encourages reader engagement by asking for opinions on recasting versus refinancing in the comments section.

Paying off your mortgage is a huge milestone, whether you aim to pay off your mortgage right on time or you plan to pay off your mortgage early. There are different strategies that you can use on your journey, which often turns up the great debate of recasting versus refinancing.

There are benefits to both recasting and refinancing a mortgage, like all things in personal finance, the best option depends on your personal situation. In this video, we'll dive in to help you get a better handle on recasting versus refinancing.

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Okay, what is recasting? In a recast, your lender runs your mortgage payment schedule again based on the remaining loan balance and loan term. If you are at all ahead on your mortgage payments, a recast could potentially lower your monthly payment amounts.

So how do you know if a mortgage recast is right for you? If you've made extra payments or intend to make extra payments, you might consider a recast. A mortgage recast is also a solid option if you intend to make a single lump sum extra payment before you pay off your mortgage.

Well, how about refinancing? What is that? How does that differ? Well, refinancing a mortgage is different than recasting one. To refinance a mortgage, you are actually changing the terms of the mortgage; essentially, you're taking out a new and hopefully improved loan. You and your lender use a new mortgage to pay off your existing mortgage. You then take over the new mortgage, making payments as outlined in the new loan.

Unlike recasting your mortgage, which does not alter the interest rates, refinancing your mortgage can change one or many terms of the mortgage, including interest rates, payment terms, and the length of the loan. Though there are many reasons why people might refinance, one of the most common ones is to try to take advantage of lower interest rates. So, if your initial mortgage had a 4% interest rate and rates drop, you may be able to refinance to 3% or even lower. Of course, this depends on many factors, including the overall market. If you're considering refinancing, a great partner to consider is Credible. Credible shops across multiple lenders and can give you personalized rates in just three minutes. To check current rates for a refinance, click the link for Credible in the video description.

Okay, let's discuss the pros and cons of recasting your mortgage. One of the biggest benefits of a mortgage recast is the fact that you can trim your monthly housing expenses. That means that you can reallocate your money in your budget towards investments, vacation, sinking funds, or anything else that your family values. For many families, the idea of having more wiggle room in their budget without having to pick up a side hustle or land a raise at work is reason enough to consider a recast.

There are additional benefits to consider as well. With a recast, you don't have to worry about having your home appraised. You also don't need to go through the credit check process all over again. The recasting process is much more straightforward than refinancing. However, a mortgage recast might not be for everyone. If you want to modify the actual terms of your loan, you can't do that with a recast. Other homeowners who might want to pass on a recast are individuals working with lenders who charge for recasting. A recast comes with a one-time flat fee if the lender charges one at all. In this case, these homeowners might opt instead to continue making their own additional payments.

Additionally, not all loans qualify for a recast. If you have a VA or FHA loan, you can't recast your loan. You also need to make sure that you meet the payment requirements that most lenders build in as a recast prerequisite. Before you decide if recasting your mortgage is right for you, make sure you familiarize yourself with the details of your current loan. For a full deep dive into recasting your mortgage, we have a video right here on this channel.

Now let's talk about the pros and cons of refinancing your mortgage. There are a variety of benefits to refinancing your mortgage, from say a 30-year to a 15-year term. Some of the top perks include shortening the life of your loan, reducing monthly payments, paying less money towards interest, becoming debt-free faster, and getting better control over your payments.

Many times homeowners find their financial situations changing. Refinancing your mortgage may allow you to make sure your mortgage matches your money circumstances. For instance, individuals who took out adjustable-rate mortgages might really appreciate the certainty that comes with fixed-rate mortgages. In other instances, homeowners may have appreciated a long-term loan like a 30-year mortgage, but then they decide they want to become debt-free faster. Refinancing to a 15-year loan might better suit that new focus.

While there are many benefits to refinancing your mortgage, it's important to consider the drawbacks as well. Refinancing costs money, usually two to five percent of the loan. That means it's important to run the numbers to see what if any savings you'll net by refinancing. Other potential drawbacks include reducing equity in your home if you do a cash-out refi and higher monthly payments if you decide to take out a shorter loan.

When considering a refi, you may want to look at your specific situation. You can crunch the numbers yourself or do a Google search for a refinancing calculator to help you decide if recasting or refinancing your mortgage might be beneficial.

We rounded up answers to some of the most common questions homeowners have. The first one is: Is recasting the same thing as refinancing? Well, no, we've covered that now. Recasting and refinancing are not the same things. Recasting your mortgage has the potential to decrease your monthly payment amounts; every other part of your loan remains the same. On the other hand, refinancing your mortgage can change one or multiple terms of the loan. For example, many people refinance their mortgages in order to obtain a better interest rate. Some people also refinance to change the length of the loan. Maybe when you took out your mortgage, a 30-year term fit for your financial future best, but maybe after paying it down for several years, you've decided that you want to become mortgage-free faster. Refinancing into a 15-year loan can help you do just that.

Now, here's the second question: Is it better to recast or just pay down the principal? Well, that depends on how your loan is set up and who your lender is. Of course, you can continue to pay down the principal as long as your loan allows it and not change a thing. The benefit of doing this is that you can revert back to your regular payments at any given time. There's no stress and there's no extra thinking. Instead, you just follow the terms of the loan that you're familiar with.

Another consideration to make when it comes to recasting your mortgage is that there's a cost to do so. Depending on the lender, you may be able to recast your loan for free. Other lenders may charge $250 to $500 to do that recast. For our frugal friends out there who are content to manage their regular payments and add extra payments as they go, a recast fee may not be worth the benefit of a recast. Remember that a mortgage recast does not change your interest rate or the length of your loan. Recasts also don't impact your home equity. However, many people are excited about the possibility of a recast; it can free up extra money in your monthly budget.

So what's the final verdict on recasting versus refinancing? Well, when it comes to homeownership, flexibility is key. That goes for the financial aspect as well. Oftentimes, people buy a home in one financial situation and discover that their circumstances and their goals evolve over time. Both of these strategies can be helpful ways to become mortgage-free faster, and you know we're all about that on this channel.

If refinancing seems like it would benefit your mortgage payoff journey, find out how Credible can help make the refinancing process simple. We'll have that link to Credible in our video description. And no matter where you are in your debt payoff journey, keep going. We promise it's worth it. Enough from our side, everybody. We want to hear from you. Where do you fall in the recasting versus refinancing debate? Do you plan to take advantage of either one of these? Please let us know in the comments below. This is Andy Hill from Marriage, Kids, and Money, signing off. Carpe diem! [Music] Bye.