What is a mortgage recast and how does it work?

A mortgage recast (also called re-amortization) is a one-time or infrequent servicing option many lenders offer that recalculates your monthly payment after you make a large, voluntary principal payment. Instead of taking out a new loan (a refinance), the servicer applies your lump sum directly to principal and recomputes payments over the remaining term. Your interest rate and original maturity date stay intact; only the payment amount changes.

This makes recasting attractive when you have cash available—an inheritance, bonus, sale proceeds, or other savings—and want lower monthly cash flow obligations while keeping your existing mortgage features (for example, a low interest rate or exempt loan program).

(Consumer Financial Protection Bureau explains this option and reminds borrowers that availability and terms vary by servicer.) [https://www.consumerfinance.gov/ask-cfpb/what-is-a-mortgage-recast-en-1867/]

Key features: what changes and what doesn’t

  • Interest rate: unchanged. A recast does not lower or change the mortgage interest rate.
  • Loan term / maturity date: typically stays the same unless the servicer offers a different amortization choice; most recasts re-amortize to the remaining term.
  • Monthly payment: reduced because principal is lower.
  • Loan balance: reduced immediately by the lump-sum principal payment.
  • Credit/income qualification: usually not required the way refinancing requires re‑qualifying.
  • Escrow and mortgage insurance: escrow accounts and private mortgage insurance (PMI) typically remain in place unless separate conditions are met.

Who can use a recast and which loans are eligible

Eligibility depends on the loan investor (Fannie Mae, Freddie Mac, Ginnie Mae) and the loan servicer. In practice:

  • Conventional conforming loans (those owned or securitized by Fannie Mae or Freddie Mac) frequently allow recasts through the servicer.
  • Some government-backed loans (FHA, VA) may or may not support recasting depending on the servicer; FHA recast options are less common and often limited. Always check the specific loan servicer’s policy.
  • Jumbo loans and portfolio loans depend on the originating lender’s servicing rules.

Because policies differ, the single most important early step is to contact your loan servicer and ask about recast availability, minimum payment requirement, allowed frequency, and fees.

For an overview of recasting eligibility and trade-offs, see our deeper comparison: Recast vs Refinance: How a Recast Can Lower Payments Without Requalifying (FinHelp). [https://finhelp.io/glossary/recast-vs-refinance-how-a-recast-can-lower-payments-without-requalifying/]

Typical costs, minimums, and timing

  • Minimum lump-sum payment: many servicers require a minimum principal curtailment before a recast — commonly $5,000 to $10,000, but some lenders ask for a percentage of the loan (for example, 5–10%).
  • Service fee: lenders commonly charge a recast fee that ranges roughly from $150 to $500. Some lenders waive fees for long-standing customers or during promotions.
  • Processing time: recasts can take a few weeks; the lender will provide a new amortization schedule and updated payment.

Always get the fee and minimum in writing before sending funds. If the minimum is high, compare the net present value of lower payments versus other uses for the cash.

Step-by-step: how to request a mortgage recast

  1. Confirm eligibility: call your loan servicer and ask whether they offer recasts for your loan type and what requirements apply.
  2. Ask these questions: minimum lump sum, allowable frequency, fee amount, how soon the payment must post before processing, and whether escrow/PMI are affected.
  3. Get the servicer’s recast form or written instructions.
  4. Make the principal-only payment per instructions (mark it for principal curtailment). Keep proof of payment.
  5. Follow up to ensure the payment was posted to principal and request the new amortization schedule that shows the reduced monthly payment.
  6. Confirm the effective date and ensure automatic payments are updated if you use autopay.

Include a written record of every step (emails, confirmation numbers, new payment schedule).

Example calculations

Example A — Straightforward recast:

  • Original loan: $300,000 balance, 30-year fixed, 4.5% interest, monthly payment ≈ $1,520 (principal & interest).
  • Lump-sum: $60,000 applied to principal.
  • New balance: $240,000. Remaining term: 30 years (if recast to remaining term) or 29 years depending on how long you’ve had the loan.
  • New monthly payment (approx): $1,216 — a monthly savings ≈ $304.

Example B — Compare to refinancing:

  • If market rates are materially lower (say 3.5%), refinancing may drop the payment or shorten the term and save interest — but refinancing brings closing costs (often 2–4% of loan amount) and requires underwriting. A recast avoids requalification and closing costs but preserves the existing rate.

Use a mortgage calculator to model exact savings for your remaining term and remaining amortization months.

Pros and cons

Pros:

  • Lower monthly payment without taking a new loan or re‑qualifying.
  • Relatively low fees compared with refinancing closing costs.
  • Keeps existing interest rate and loan features (beneficial if your rate is low).

Cons:

  • Uses liquid cash that could otherwise be invested, reduce higher‑interest debt, or held for emergencies.
  • Does not change interest rate — if rates are meaningfully lower, refinancing could yield larger lifetime savings.
  • May not remove PMI or change escrow requirements.
  • Not universally available; servicer policies vary and some loan types (especially certain FHA-backed loans) may have limited options.

Practical strategies and professional tips

  • Compare the break‑even: calculate how long it will take for monthly savings from a recast to “pay back” the lump sum versus other uses of the cash (investments, emergency savings, paying high‑interest debt).
  • Preserve liquidity: avoid using your entire emergency fund to recast. Keep 3–6 months of liquid savings depending on household stability.
  • Consider partial principal payments without recast: many lenders accept extra principal payments that reduce the balance and interest but keep the monthly payment the same; later you can request a recast.
  • Ask about multiple recasts: some servicers allow multiple recasts, others limit you to one or charge each time.
  • Negotiate the fee: ask whether the recast fee can be waived, reduced, or offset by applying a larger principal payment.

When recasting makes more sense than refinancing

  • Your rate is lower than current market rates and you want lower payments without switching loans.
  • You can’t or don’t want to requalify (employment/income has changed), but you have cash to reduce payments.
  • You want to avoid closing costs and the paperwork/time involved in refinancing.

When refinancing may be better:

  • Current market rates are significantly lower than your rate and you plan to remain in the house long enough to recoup closing costs.
  • You want to change loan features (switch from adjustable to fixed, remove a co‑borrower, consolidate second lien, drop PMI if enough equity).

For a side‑by‑side discussion, see our comparison: Refinance vs Reamortize: When Recasting Makes More Sense (FinHelp). [https://finhelp.io/glossary/refinance-vs-reamortize-when-recasting-makes-more-sense/]

Common misconceptions

  • “Recasting is a free or automatic option”: not true — fees, minimums, and servicer approval apply.
  • “Recasting reduces total interest paid as much as refinancing”: not necessarily — lowering principal lowers future interest, but refinancing to a lower rate can reduce lifetime interest far more.
  • “Recasts remove PMI or change loan insurance rules”: usually no; PMI is governed by loan rules and equity thresholds and may require a separate request or refinance.

Checklist before you commit

  • Call your servicer and get recast policy details in writing.
  • Confirm the minimum lump-sum and exact fee.
  • Model the payment and remaining-term impact with a mortgage amortization calculator.
  • Compare to a refinance quote (include closing costs and rate) and the option of making extra principal payments without recasting now.
  • Maintain an emergency fund after making any large principal payment.

Final notes and disclaimer

I’ve guided hundreds of homeowners through mortgage decisions; a recast is a useful tool when you want lower monthly payments quickly and without the friction of a refinance. However, it’s not a universal solution. Always compare the numbers, preserve liquidity, and confirm servicer terms before sending a large principal payment.

This article is educational and not personalized financial advice. For recommendations tailored to your situation, consult your mortgage servicer or a licensed financial advisor.

Sources and further reading