Unable To Refinance? Try Recasting Instead

You can reduce your monthly mortgage payment, but you need to have some cash upfront. Homeowners who receive a large bonus or an inheritance are prime candidates for a recast. If your goal is to pay off your home loan faster, you may be better off making extra payments either on a bimonthly basis or making one extra payment per year, since a recast doesn't shorten your loan term. However if you want to lower your monthly payment recasting can be as effective as refinancing.

"Recasting," also called reamortization, is a little-known way to shrink your monthly house payment. Recasting involves paying a lump sum toward your mortgage and then readjusting your payment to reflect your new balance.

While not every lender offers recasting as an option for their mortgage borrowers, some offer this service for as little as $150, a substantial savings compared with the closing costs of a refinance. The only catch is that you may need to post a fairly large sum to the mortgage principal to get started —  possibly $5,000 or more.

Not all loans are eligible for recasting. Conventional loans and conforming Fannie Mae and Freddie Mac loans are the most common loans to be eligible for recasting, but loans through the Federal Housing Administration and Department of Veterans Affairs cannot be recast. In general, fixed-rate home loans are the most common to be recast, but some lenders may allow recasting on adjustable-rate mortgages or on jumbo loans.

Always be sure to review your overall financial plan when considering a loan recast. If you have extra cash, you may find it wiser to apply it to your retirement fund or to pay off other debt. But if a lower monthly mortgage payment is high on your priority list, a recast could be the right option for you.