How recasting works
Your required payment is calculated so that the loan is fully paid by the end of the term. If you pay a big chunk of principal early, the lender can recalculate the payment on the smaller balance over the same remaining term. That recalculation is the recast. Because the rate does not change, it works best when your existing rate is already attractive and a refinance would raise it. Understanding how a loan is paid down helps: see amortization.
An example with real numbers
You have a $400,000, 30-year loan at 6.50% with a payment of $2,528.27. After five years your balance is about $374,444. You receive $50,000 and put it all toward principal.
| Option | Monthly payment | Payoff | Total interest on the loan |
|---|---|---|---|
| Do nothing | $2,528 | 30 years | $510,178 |
| Recast after the $50,000 payment | $2,191 (saves $338) | Still 30 years | about $458,900 |
| Pay $50,000 and keep the $2,528 payment | $2,528 | about 23.4 years | about $358,500 |
The recast lowers the payment by roughly $338 and still saves about $51,000 of interest. Keeping the old payment saves much more interest, about $151,700 in this example, by finishing the loan nearly seven years sooner. Which is better depends on whether your goal is cash flow or total interest. Use the mortgage calculator to model extra payments on your own loan.
Recast vs refinance vs extra payments
| Recast | Refinance | Extra payments only | |
|---|---|---|---|
| Interest rate | Unchanged | New rate | Unchanged |
| Monthly payment | Lower | Usually lower | Unchanged |
| Loan term | Unchanged | New term | Shorter payoff |
| Cost | Small fee | Full closing costs | None |
| Credit check and appraisal | Typically none | Required | None |
| Best when | You want a lower payment and keep a low rate | Rates are lower than yours | You want to save the most interest |
If rates have fallen well below yours, a refinance may beat a recast. Use the refinance break-even calculator to compare.
Costs, rules and who can recast
- Minimum lump sum. Many servicers require a minimum, often several thousand dollars. Ask yours.
- Fee. Usually a modest administrative fee.
- Loan type. FHA, VA and USDA loans generally cannot be recast; many conventional loans can, depending on the servicer. Some jumbo and portfolio loans have their own rules.
- Good standing. Servicers often require that you are current on payments.
- It does not remove mortgage insurance on its own. Ask whether a lower balance helps you cancel it. Cancellation depends on your loan-to-value and the loan type.
When a recast makes sense
- You sold a previous home and bought a new one before the old one closed, and now have the proceeds in hand.
- You came into a lump sum and want to lower your required payment for flexibility.
- Your rate is low and a refinance would raise it.
- You prefer a lower required payment but also want the option to keep paying more voluntarily.
A recast is not the best use of cash if you carry higher-interest debt or have no emergency fund. Weigh it against other uses, including tapping home equity later (see HELOC vs cash-out refinance), and keep reserves. Putting more into the home reduces your liquidity.
Written by the Reaixo editorial team. Last reviewed . Educational information, not financial, legal or tax advice.