Overview
Mortgage recasting (sometimes called re-amortization) is a straightforward, low-friction way to change how much you pay each month without refinancing. Instead of replacing your loan or changing its interest rate, you make a lump-sum principal payment and the lender recalculates the amortization schedule around the new balance while keeping the original rate and remaining term.
This article explains how recasting changes the amortization schedule, shows numerical examples, compares recasting to refinancing, lists eligibility and costs, and offers practical tips to decide whether a recast makes sense for your situation. Sources include the Consumer Financial Protection Bureau and common lender practices; consult your lender and a tax advisor before acting (CFPB, n.d.).
(Disclosure: I’ve worked with clients using recasts to reduce monthly payments after bonuses, inheritances, or asset sales. In my practice, recasts most often help borrowers who want lower monthly payments without taking on a new loan.)
How recasting changes the amortization schedule
An amortization schedule shows how each monthly payment is split between interest and principal over the life of your loan. Early payments are interest‑heavy; later payments shift toward principal.
When you recast, you reduce the outstanding principal with a lump-sum payment. The lender then recalculates the monthly payment by applying the same interest rate to the new, lower principal for the remaining term. The result:
- Your monthly payment drops because interest is now charged on a smaller principal.
- The total interest you pay over the life of the loan decreases because interest accrues on a lower balance from the recast date forward.
- The loan’s remaining term usually stays the same, so you don’t restart a 30‑year clock as you would with many refinances.
Note: Some lenders may offer an option to keep your monthly payment the same after a principal payment — in that case the amortization schedule shortens (you pay off the loan sooner). Most standard recasts reduce the monthly payment instead.
Numerical example: how much will my payment change?
Example A — Typical 30‑year, fixed‑rate mortgage
- Original loan: $300,000
- Interest rate: 4.00% (fixed)
- Term: 30 years (360 months)
- Original monthly PI payment: about $1,432.25 (principal & interest)
Now you make a $50,000 lump‑sum principal payment; new balance = $250,000. The lender recalculates payments for the remaining 360 months at the same 4.00% rate.
- New monthly PI payment: about $1,193.54
- Monthly savings: ≈ $238.71
This example shows how a recast reduces your monthly payment roughly proportional to the balance reduction (50,000 is 16.7% of 300,000, and the payment falls by about 16.7%). The exact change depends on remaining term and timing.
Alternative: Keep payments the same to shorten the term
If you opt to keep your payment at $1,432.25 after applying $50,000 to principal (if your lender allows), that extra principal accelerates payoff and shortens your amortization schedule — you’d pay the loan off years sooner and save much more in interest. Ask your lender whether they can apply the principal and retain your payment level.
How recasting differs from refinancing
- Rate and loan terms: Recasting keeps your current interest rate and loan documents; refinancing replaces your loan with a new one, often at a different rate and with new closing costs.
- Fees and costs: Recasts usually have a modest administrative fee (often a few hundred dollars) while refinancing has closing costs that can run thousands.
- Credit check and underwriting: Recasts typically require minimal underwriting; refinances require full underwriting and a new credit check.
- When each makes sense: If your goal is a lower monthly payment and you can make a large principal payment, recasting is often cheaper. If you want a lower interest rate or to change the loan term, refinancing may be better. See our primer on refinancing for more scenarios and timing strategies (Refinancing 101: When to Refinance Your Loan).
For a focused comparison of small-sum adjustments and when a short recast is preferable to a full refinance, review our article: When to Use a Short Recast Instead of a Full Refinance.
Who is eligible for a recast?
Eligibility varies by lender and loan type, but common requirements include:
- A conventional mortgage (Fannie Mae / Freddie Mac guidelines often allow recasts; FHA and VA loans may have restrictions).
- A completed season of payments (some lenders require several months of on‑time payments before recast).
- A minimum lump‑sum amount (typical minimums vary by lender; some require $5,000–$25,000, but you must confirm with yours).
- No outstanding delinquencies or problematic loan servicing history.
Because practices differ, call your servicer and ask about their recast policy, required documentation, and any caps on frequency.
Typical costs and timing
- Administrative fee: Many lenders charge a single administrative fee to process a recast (commonly $150–$500, but this varies).
- Timing: Recasts can be processed quickly — often in a few weeks after payment clears — because they do not require a full refinance.
- Restrictions: Some lenders limit how often you can recast or require a minimum time between recasts.
Ask your servicer for a written quote that shows the new monthly payment after the recast and any fees.
Tax and financial considerations
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Mortgage interest deduction: Recasting does not change your interest rate or the interest already paid. You’ll pay less interest going forward because of the lower balance, which may reduce the deductible mortgage interest in future tax years. Consult a tax professional for how this affects your specific tax situation. (IRS guidance: consult your tax advisor for mortgage interest deductions.)
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Opportunity cost: Using a lump sum to recast reduces liquidity. Compare the after-tax return of alternative uses — paying down higher‑interest debt, investing, or keeping cash for an emergency fund — before committing the funds.
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Credit score: Recasting itself typically does not directly alter your credit score the way opening or closing accounts can. However, lowering debt and maintaining on‑time payments helps credit over time.
Practical steps to request a recast
- Contact your loan servicer: Ask whether they offer recasting, the minimum required lump sum, fees, documentation, and processing time.
- Confirm loan type eligibility: Verify whether your loan program (conventional, FHA, VA, or portfolio) allows recasts.
- Calculate the impact: Request a written amortization schedule or payoff quote showing payments before and after the recast.
- Make the lump-sum payment: Follow the servicer’s instructions for wiring or sending the payment so it’s applied to principal and flagged for recast.
- Get confirmation: After processing, obtain the new amortization schedule and a statement that certifies the recast and any fee charged.
Pros and cons — quick checklist
Pros:
- Lower monthly payment without changing your rate.
- Typically much cheaper than refinancing.
- Minimal paperwork and quick process.
Cons:
- Requires a substantial lump sum and reduces liquidity.
- Not all loans or servicers offer recasting.
- Does not change your interest rate; if rates have fallen significantly, refinancing may offer bigger long‑term savings.
Common misconceptions and mistakes
- “Recasting is the same as refinancing.” No — refinancing replaces the loan; recasting recalculates payments on the same loan.
- “Any small payment will trigger a recast.” Most lenders require a meaningful lump sum and may set a minimum threshold.
- “Recasting always saves more money than refinancing.” Not necessarily. If current market rates are much lower, refinancing could reduce interest costs more despite higher upfront fees.
Frequently asked questions
Q: Will my servicer allow more than one recast?
A: It depends. Some servicers limit recasts or require minimum time between them. Confirm policy before planning multiple recasts.
Q: Does a recast affect mortgage insurance (PMI)?
A: Recasting lowers the loan balance but does not automatically remove PMI; PMI removal follows loan‑to‑value rules and may require a formal request or appraisal. Check your servicer’s requirements.
Q: Can I recast an adjustable‑rate mortgage (ARM)?
A: Some lenders permit recasting on ARMs; others do not. Eligibility depends on loan documents and servicer policy.
How to decide: recast vs refinance vs paying extra principal
- If you have cash, want a lower monthly payment quickly, and don’t need a new interest rate, recasting is often the least costly route.
- If you want a lower long‑term interest rate or a different term length, compare refinance offers including closing costs. See our detailed guide on refinancing for timing and cost comparisons (Refinancing 101: When to Refinance Your Loan).
- If you don’t want to commit cash to a single lump sum, making extra monthly principal payments still reduces interest but won’t change monthly payment amounts unless you formally request a recast.
Final takeaways
Mortgage recasting changes your amortization schedule by lowering the outstanding principal and recalculating payments for the remaining term. It’s a fast, usually inexpensive option to reduce monthly payments without changing the rate or refinancing. Before you proceed, verify servicer policies, get written payment and fee quotes, weigh alternative uses for your cash, and consult your tax advisor.
This information is educational and not personalized financial advice. For decisions about your specific loan, consult your servicer and a qualified financial or tax professional.
Sources and further reading
- Consumer Financial Protection Bureau (CFPB), information on mortgage recasting and loan options.
- FinHelp: When to Use a Short Recast Instead of a Full Refinance — https://finhelp.io/glossary/when-to-use-a-short-recast-instead-of-a-full-refinance/
- FinHelp: Refinancing 101: When to Refinance Your Loan — https://finhelp.io/glossary/refinancing-101-when-to-refinance-your-loan/
(Authority note: CFPB and loan servicer policies are current sources; specifics vary by lender and loan program. Always verify the details with your loan servicer.)
