Quick overview

Loan recasting is a lender-offered option that lowers monthly payments by applying a lump-sum principal payment to an existing mortgage and re-amortizing the remaining balance. For investors, recasting can improve cash flow quickly while keeping a favorable interest rate and the original loan term intact.

How loan recasting actually works (step-by-step)

  1. The investor requests a recast from the loan servicer and submits the required lump-sum principal payment.
  2. The servicer applies the payment to principal, recalculates the remaining amortization, and issues a new monthly payment amount. The interest rate and maturity date generally do not change.
  3. The borrower continues with the same loan but at the lower monthly payment based on the reduced principal.

Example (approximate): a $300,000, 30-year mortgage at 4.0% has a monthly principal-and-interest payment of about $1,432. If you pay $50,000 toward principal and recast the loan, the new payment on a $250,000 balance (same 4.0% and remaining term) drops to roughly $1,194. (Numbers are illustrative; use your lender’s amortization.)

Pros (when recasting makes sense)

  • Immediate cash-flow improvement: lower monthly payments without changing your rate or term.
  • Lower closing costs and paperwork than refinancing—often only a small administrative fee.
  • Keeps an existing low interest rate if market rates are higher than your loan rate.
  • Faster to complete than a refinance in most cases.

Cons and limitations

  • Does not shorten the loan term or reduce the total interest paid unless you continue making larger payments. The amortization schedule is the same length.
  • Not all loans or servicers permit recasting—policies vary widely.
  • Lender fees for recasting typically range from a nominal admin fee up to a few hundred dollars; in rare cases fees can be higher.
  • Some investors prefer to use a lump sum to pay down principal and refinance into a shorter term instead—recasting won’t change the loan rate or term.

Eligibility and common lender requirements

  • Many lenders require you to be current on payments and to submit a written request to the servicer.
  • Typical minimum principal curtailment to trigger a recast often ranges from about $5,000 to $25,000, but the exact threshold is set by each servicer.
  • Owner-occupancy and loan program can affect eligibility; conventional loans are most commonly recastable, while servicers of government-backed programs may have different rules—always confirm with your loan servicer.

Fees, timing, and paperwork

  • Expect an administrative fee (commonly $150–$500) or no fee, depending on the lender. Ask for the servicer’s recast policy in writing.
  • Processing time usually takes a few weeks after the principal payment posts.
  • Keep documentation of the payment and the servicer’s confirmation of the new monthly payment.

Tax and accounting considerations for investors

  • Paying principal through a recast reduces future mortgage interest expense; for rental property owners that interest is generally deductible as an expense on Schedule E (see IRS Publication 527). Lower interest expense can reduce deductible rental expenses and affect taxable rental income. (IRS: https://www.irs.gov/publications/p527)
  • Recasting itself is not a taxable event—you’re simply reducing debt principal.
  • Track interest and principal separately for accurate books and tax reporting.

When to pick recast vs refinance

  • Choose recasting when: you want lower monthly payments quickly, have a low current rate you want to keep, and prefer minimal paperwork/closing costs.
  • Choose refinancing when: you want a lower interest rate, to change the loan term, cash out equity, or consolidate debt—refinancing creates a new loan and often involves higher closing costs.
    See our deeper comparison on when to recast instead of refinance: When to Recast a Mortgage Instead of Refinancing.

Practical checklist before you request a recast

  • Contact your loan servicer to confirm they offer recasts and request their written policy.
  • Ask the servicer for the minimum principal payment, any fees, and the processing timeline.
  • Run a simple amortization to compare total interest paid if you continue the loan vs. alternatives like refinancing or extra principal payments without recasting.
  • Consider tax effects; consult a tax advisor about how lower interest expense affects your rental returns.

Real-world investor tips (from practice)

  • If you expect short-term cash needs (repairs, vacancy coverage), recasting can free up monthly cash without losing a low fixed rate.
  • I often advise clients with multiple investment mortgages to weigh recasting one loan versus reallocating capital to reduce higher-rate debt or fund improvements that raise rent—see our guide on managing multiple mortgages: Managing Multiple Mortgages: Strategies for Investors with Several Properties.

Sources and further reading

Professional disclaimer: This article is educational and not personalized financial, legal, or tax advice. Rules and lender policies change; consult your loan servicer, a CPA, or a licensed advisor before acting.