What recasting is
A recast, or re-amortization, keeps your loan exactly as it is: the same lender, the same rate, the same number of payments left, no credit check and no new closing. You pay a lump sum towards principal, the servicer charges a fee, and then divides what's left over the remaining months. Because the balance is smaller and the time is the same, every payment from then on is lower.
That's the difference from a refinance, which replaces the loan with a new one at today's rates and costs thousands to close. A recast can't lower your rate, and it can't stretch the loan out longer. It only turns a lump sum into a smaller payment.
An example
$300,000 owed at 6.5% with 25 years left, which is $2,025.62 a month, and $50,000 to put towards it:
| What you do | Payment | Paid off in | Interest left |
|---|---|---|---|
| Nothing | $2,025.62 | 25 years | $307,687 |
| Recast | $1,688.02 | 25 years | $256,405 |
| Pay it and keep your payment | $2,025.62 | 17 years 1 month | $164,856 |
The same $50,000 either frees up $337.60 a month for 25 years, or takes 7 years 11 months off the loan and saves $91,798 more in interest. Recasting isn't worse, it's a different trade: a smaller bill every month instead of a shorter loan. Paying and keeping your payment also costs nothing and needs no one's permission.
When a recast is worth it
- Your income dropped, or is about to. Retirement, a move to one salary, a business that has lean months: a permanently lower required payment is worth more than a shorter loan.
- You bought before selling. Buy the new house, sell the old one, then recast with the proceeds. This is the commonest reason servicers are asked, and some lenders advertise it.
- You have a rate worth keeping. A 3% loan you'd never want to refinance can still have its payment lowered this way.
- The lump sum is large relative to the balance. Below about 10%, the payment barely moves and the fee is a bigger share of the benefit.
What your servicer decides
- Whether they do it at all. FHA, VA and USDA loans generally can't be recast. Most conventional loans can, but it's the servicer's policy, not a right.
- A minimum lump sum, often $5,000 or 10% of the balance.
- A fee, usually $150 to $500.
- Timing. Some want the payment applied first and recast the following month; some require a few months of on-time payments before they'll do it.
- How the payment is applied. Say in writing that it's for principal. Otherwise a large payment can be held as a prepayment of future bills, which saves nothing.
Common questions
Does recasting save interest?
Yes, because the balance is smaller from that day on. In the example it saves $51,033 after the fee. It saves less than paying the same money and keeping your payment, because the loan still runs its full term.
Does a recast change my rate or my payoff date?
No. Only the payment changes. To change the rate you'd refinance; to change the date, pay more each month.
Is a recast the same as a refinance?
No. A refinance is a new loan with new closing costs and today's rate; a recast keeps the loan you have and costs a few hundred dollars. The refinance calculator shows when replacing the loan is worth it.
Can I recast more than once?
Many servicers allow it, sometimes with a limit. Each one costs the fee again.
What if I can't recast?
Then paying the lump sum towards principal still works and still saves more interest than a recast, it just doesn't lower the payment. The extra payment calculator shows what a one-time payment does to any month of your schedule, and the balance calculator works out what you owe today.