Background

Loan recasting (also called re-amortization) has become a popular alternative to refinancing for borrowers who want lower monthly payments without changing the interest rate or taking on closing costs. Borrowers commonly use recasting after a windfall—inheritance, bonus, sale of an asset—or when they prefer to keep a low rate on an existing loan. Availability and exact rules vary by lender and loan type (check your servicer), but the core idea is simple: you make a lump-sum principal payment and the lender recalculates your monthly payment on the remaining balance.

How loan recasting works — step by step

  1. Confirm eligibility with your loan servicer. Not every loan or servicer offers recasting; policies differ across banks, credit unions, and government-backed loans (verify with your servicer and read your mortgage statement). (Consumer Financial Protection Bureau)
  2. Make the required lump-sum principal payment. Lenders typically set a minimum (commonly several thousand dollars) before permitting a recast.
  3. Pay a recast fee. Typical fees range from $0 to $500—far lower than refinance closing costs—though amounts vary by lender.
  4. Lender re-amortizes the loan. The servicer recalculates monthly payments based on the new principal and remaining loan term; the original interest rate and payoff date usually remain unchanged.

Cost comparison: recast vs. refinance

  • Upfront fees: Recasting usually costs a modest administrative fee (often under $500). Refinancing requires closing costs that commonly run 2%–5% of the loan amount (appraisal, title, lender fees, points). (See additional detail in “How Closing Costs Change When You Refinance a Mortgage”.)
  • Interest-rate change: Recasting keeps your existing rate. Refinancing replaces the rate — potentially lower (savings) or higher (worse). The decision often hinges on whether a lower new rate offsets refinance costs.
  • Long-term interest savings: A refinance that reduces your rate materially can save more interest over time than a recast, especially if you extend or change the loan term. Do the math: estimate monthly savings from a lower rate, divide total refinance costs by monthly savings to get breakeven months.

Simple breakeven example (method, not advice):

  • Refinance cost: $6,000. Monthly savings after refinance: $200. Breakeven = $6,000 ÷ $200 = 30 months. If you plan to keep the loan longer than 30 months, refinance may make sense. If not, a recast (low fee) can deliver immediate monthly savings.

Qualification checklist: when recasting is likely to be better

  • You have a fixed-rate mortgage with a servicer that permits recasts.
  • You can make a sizable principal payment (lenders often require $5,000–$20,000 minimum, depending on the lender).
  • Your current interest rate is already competitive for your financial goals (i.e., you don’t need a lower rate to justify refinance costs).
  • You want to reduce monthly payments and keep your payoff timetable intact (no term extension).
  • You prefer to avoid a full underwriting and credit check or you’re trying to avoid the costs and paperwork of refinancing.

When refinancing may be better

  • Current market rates are meaningfully lower than your rate, producing large monthly savings after closing costs.
  • You want to change the loan term (shorten to pay off faster or extend to lower payment substantially).
  • You need to pull cash out of home equity (cash‑out refinance) or consolidate other debts onto a new loan.
  • You want to switch loan types (adjustable-rate to fixed-rate) or access a different product.

Real-world example

Illustrative scenario: a 30-year fixed loan of $250,000 at 4.5% has a monthly principal & interest payment of about $1,266. If the borrower pays $60,000 toward the principal and the lender recasts the loan, the new balance is $190,000 and the monthly P&I drops roughly in proportion to the balance (to roughly $960), depending on the remaining term. This example assumes the original interest rate and remaining term stay the same; real payments vary by exact amortization schedule and timing.

Pros and cons — quick view

Pros of recasting:

  • Low fee compared with refinance closing costs.
  • No underwriting, usually no credit pull, and faster process.
  • Keeps existing interest rate and loan terms intact.
  • No change to tax treatment of mortgage interest (recasting isn’t a taxable event).

Cons of recasting:

  • No reduction in interest rate (so limited long‑term interest savings if rates are lower now).
  • Not universally available — some loan types or servicers disallow it.
  • If you plan to sell or refinance soon, the small savings may be less useful.

Common mistakes and misconceptions

  • Mistaking recasting for refinancing: recasting does not change your interest rate, loan product, or term, while refinancing replaces the loan entirely.
  • Assuming all lenders offer recasts: policies differ; always ask your servicer and get any fee schedule in writing.
  • Forgetting minimum principal requirements: recast programs usually require a significant lump sum.

Professional tips

  • Ask your servicer for a written quote that shows the new monthly payment after a recast and the exact fee.
  • Run both scenarios: (a) recast cost + new payment and (b) refinance closing costs + new rate/payment. Compute breakeven months and compare to how long you plan to stay in the home.
  • Consider partial strategies: sometimes paying down the balance and then refinancing a smaller amount can lower refinance costs and improve loan-to-value (LTV) ratios.

Additional resources and internal links

Frequently asked questions

  • Is recasting available on government loans? Availability varies. FHA, VA, and USDA servicers may have different policies or limited options; confirm with your loan servicer.
  • Will a recast hurt my credit? Generally no—recasting is administrative and typically does not involve a credit pull.
  • Can I recast more than once? Some lenders allow multiple recasts; others limit the number or require a minimum between requests. Verify with your servicer.

Professional disclaimer

This article provides educational information about loan recasting and refinancing choices and does not constitute personalized financial or legal advice. Your situation can differ based on loan type, servicer policies, or state rules. Consult a qualified mortgage professional or attorney before making decisions. (Consumer Financial Protection Bureau; National Association of Realtors.)

Author note

In my mortgage practice I’ve seen recasting deliver meaningful monthly relief for borrowers who don’t need a lower rate or who want to avoid refinance costs. The right choice depends on your balance, the size of the lump-sum payment, current rates, and how long you plan to keep the loan.

Authoritative sources

  • Consumer Financial Protection Bureau (consumerfinance.gov)
  • National Association of Realtors (nar.realtor)