Quick answer
A mortgage recast (sometimes called re-amortization) reduces monthly payments by applying a one-time principal payment and recalculating payments over the remaining term while keeping your original interest rate and loan maturity. Recasting is usually cheaper and faster than refinancing, but it won’t change your interest rate or loan term and isn’t available for every loan type.
How recasting fits with refinancing and modification
- Recast: You keep your current loan, interest rate, and remaining term. The servicer applies a lump-sum principal payment and recalculates (reamortizes) monthly payments. Typical uses: one-time windfall, avoid closing costs, keep a low locked-in rate.
- Refinance: You replace your loan with a new mortgage that may have a different interest rate, loan term, or loan type. Refinancing can lower rate, shorten term, or pull cash out, but it incurs closing costs and requires underwriting.
- Modification: Your existing servicer or lender changes loan terms (rate, term, sometimes principal) when you face financial hardship. Modifications are often part of workout programs and may include trial periods.
Which is right depends on your goals: keep a low rate and lower monthly payment quickly (recast); lower your rate or change term (refinance); or get relief because you’re struggling to pay (modification).
Why recasting can be attractive (and when it’s not)
Benefits
- Low cost: Recast fees are typically small compared with refinance closing costs. Many lenders charge roughly $150–$500, though amounts vary by servicer.
- Speed: Recasts can be processed in days to a few weeks; refinancing requires underwriting and closing.
- Keeps your rate: If you have a below-market fixed rate, recasting preserves that rate while lowering payments.
- No requalification: You generally do not need to requalify for credit or income like you would for a refinance.
Limitations
- No rate change: If market rates are significantly lower than your current rate, a rate-and-term refinance may save more money even after closing costs.
- Not universally available: Many conventional loans can be recast, but FHA, VA, and USDA loans often have restrictions or do not allow recasts—check your servicer (see Consumer Financial Protection Bureau guidance).
- PMI and escrow: Recasting may not automatically remove private mortgage insurance (PMI). PMI removal depends on servicer rules and LTV calculations; you may still need to request PMI cancellation once your loan-to-value drops under required thresholds.
- Minimum lump-sum: Lenders often require a minimum principal reduction (commonly $5,000–$10,000) to process a recast.
(For more on the mechanics and options, see our internal guide: Mortgage Recast and When to Recast Your Mortgage: Benefits and Drawbacks.)
How to decide: practical checklist (step-by-step)
- Clarify your goal
- Lower monthly payment without changing the rate? Recast is a good fit.
- Lower your interest rate or shorten the term? Refinance is likely better.
- You can’t afford payments due to hardship? Contact your servicer about modification options.
- Confirm loan and servicer rules
- Call your mortgage servicer to ask if they allow recasts, required minimum principal payment, and fee schedule.
- Ask whether your loan type (conventional, FHA, VA, USDA) is eligible.
- Useful resources include the Consumer Financial Protection Bureau for servicer guidance and your loan documents for specific clauses.
- Run the numbers: recast vs refinance
- For recast: estimate the new monthly payment after applying the lump-sum principal. The math is straightforward—your balance drops and the remaining payments are recalculated at the same rate for the remaining term.
- For refinance: calculate the new monthly payment at the prospective rate and term, then include closing costs. Compute the breakeven point: closing costs ÷ monthly savings = months to recoup costs.
- Example (illustrative): If you have a $300,000 balance at 4.5% with 25 years remaining, and you apply $50,000 to principal via recast, your monthly payment falls because you now amortize $250,000 over 25 years at 4.5%. If current market rates are 3.5%, a refinance might lower payments more but could cost several thousand in closing fees—compare the breakeven months.
- Check PMI and tax effects
- PMI: If PMI is part of your mortgage, recasting lowers the balance and LTV, but PMI removal depends on servicer rules and your proof of current home value. If your LTV drops below your servicer’s cancellation threshold you can ask for PMI cancellation.
- Taxes: Mortgage interest remains potentially deductible subject to IRS rules (see IRS Publication 936). A recast lowers future interest paid because the outstanding balance is lower, but it does not create new deductible fees related to refinancing.
- Preserve liquidity
- Don’t deplete your emergency savings to recast. A recast is irreversible in the short run—once you pay down principal with cash, that money is illiquid unless you refinance later or access home equity.
- Get written confirmation
- If you decide to recast, request a clear written estimate of the fee, the effective date, new payment amount, and any effect on escrow accounts or PMI.
When a refinance makes more sense
- Your current rate is well above market and you plan to stay in the home long enough to recoup closing costs.
- You want to switch from an adjustable-rate mortgage (ARM) to a fixed rate or shorten the term (e.g., 30-year to 15-year) to save interest over time.
- You need to take cash out (cash-out refinance) for renovations or debt consolidation—recasting cannot extract cash.
When to choose modification instead
- Modification is the right pathway if you’re unable to meet payments because of job loss, medical bills, or another verified hardship. Modifications are negotiated with the servicer and may include lowering the rate, extending the term, or temporary forbearance. Talk directly with your servicer and consider HUD or CFPB resources if you need help with workout options.
Real-world examples from practice
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Client A: Low locked-in rate. In my practice I helped a client who had a 3.25% fixed rate from several years prior. They received a $75,000 inheritance and didn’t want to give up their below-market rate—recasting cut their monthly payment by about 20% with a small servicer fee and no underwriting.
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Client B: Market-rate opportunity. Another client had a 5% mortgage and current market rates near 3.5%. After comparing closing costs and breakeven time, refinancing lowered their lifetime interest more than recasting would, so they refinanced to a 15-year loan.
Common mistakes to avoid
- Using all liquid savings for a recast and leaving no emergency cushion.
- Assuming PMI disappears automatically after recast—always confirm the servicer’s PMI cancellation process.
- Skipping the breakeven analysis when comparing recast to refinance.
Helpful links and resources
- Read our detailed comparisons and process checklists: Mortgage Recasting vs Refinancing: Which Is Right?
- If you want a focused explainer: When to Recast Your Mortgage: Benefits and Drawbacks
- For basic definitions and steps: Mortgage Recast
- Consumer guidance on servicer contact and options: Consumer Financial Protection Bureau (https://www.consumerfinance.gov)
- Tax rules for mortgage interest: IRS Publication 936 (https://www.irs.gov/publications/p936)
Professional disclaimer
This article is educational and general in nature. It is not individualized tax, legal, or mortgage advice. Your servicer’s policies and loan documents control eligibility and costs; always verify terms with your lender and consult a licensed mortgage professional or tax advisor for personalized guidance.
Bottom line
Recasting is a cost-effective, quick way to lower monthly payments when you have a lump-sum to apply to principal and want to keep an existing interest rate. Refinance when you need a lower rate, different term, or access to cash. Modification is for borrowers who need permanent or temporary relief because of verified hardship. Run the numbers, confirm servicer rules, and preserve emergency savings before you proceed.
