Background

A rate-and-term recast gives borrowers a way to lower monthly payments by applying a lump-sum principal payment and reamortizing the remaining balance over the original loan term. Recasts have been common with conventional mortgages and are gaining attention when borrowers want quick payment relief without the costs and approval hurdles of a full refinance.

How a recast differs from refinancing

  • Recast: You make a principal payment (often at least one lump sum), the servicer recalculates payments over the remaining term, and the original interest rate and loan stay in place. Processing is usually faster and fees are typically lower.
  • Refinance: You replace the original loan with a new loan (new rate, new term, possible cash out). Refinances require credit checks, full underwriting and closing costs.

Real-world example (simple math)

  • Original loan: $300,000 at 6.00% on a 30-year schedule → monthly P&I ≈ $1,799.
  • Lump-sum principal payment: $60,000 → new balance $240,000.
  • After recast (same 6.00% and remaining 30-year amortization), monthly P&I ≈ $1,439 — about $360/month savings.

Compare that with a full refinance on the $240,000 balance to a 4.50% 30-year loan (example rate): monthly P&I ≈ $1,216 — an extra $223/month savings versus the recast. If refinance closing costs are $4,000, the extra $223 monthly savings takes ~18 months to recoup the refinance costs. This kind of break-even calculation helps decide between options; your actual rates and costs will change results.

When a recast usually beats a refinance

  • You want faster, lower-cost payment relief after a lump-sum principal reduction.
  • You like your current interest rate or mortgage features (e.g., avoided prepayment penalties, original loan terms).
  • You plan to stay in the home long term and don’t need cash-out proceeds or a different loan program.
  • Your credit or income situation makes qualifying for a new loan difficult.

When to favor a full refinance instead

  • Current market rates are materially lower and the projected refinance break-even is short.
  • You want to shorten the loan term (e.g., move to a 15-year) or take cash out for home improvements or debt consolidation.
  • You need to remove a borrower from the loan, change loan type, or consolidate multiple mortgages.

Costs, eligibility and common rules

  • Fees for recasts are usually modest (servicing fees) compared with refinance closing costs, but policies and minimums vary by servicer. Many lenders require a minimum principal reduction; common thresholds range from several thousand dollars to $10,000 or more — check your servicer for exact rules. (Policies vary widely.)
  • Not all loan types or servicers offer recasts. Confirm availability with your mortgage servicer before planning a lump-sum payment.
  • Recasting does not typically produce a new loan, so it usually has minimal effect on your credit file compared with a refinance that triggers a hard credit pull.

Steps to evaluate and execute

  1. Contact your mortgage servicer to ask whether they offer recasts, the minimum payment required, and the fee schedule.
  2. Calculate the payment change and compare it with projected refinance payment using realistic rates and estimated closing costs.
  3. Run a break-even analysis: Extra monthly savings from refinancing ÷ closing costs = months to recoup.
  4. Confirm tax and legal implications with a professional — recasting normally does not change the tax treatment of mortgage interest, but consult IRS Publication 936 or a tax advisor for your situation.

Professional tips

  • Use a side-by-side worksheet (or an online mortgage calculator) to compare recast vs refinance scenarios with your actual numbers.
  • Ask whether a lender offers a partial recast or reamortization; some servicers permit smaller principal reductions and partial reamortizations—see pros and cons in our guide on partial recasts.
  • Don’t forget to factor in escrow, PMI changes, and whether your current loan has borrower benefits you’d lose by refinancing.

Related resources on FinHelp

Common pitfalls and misconceptions

  • Myth: You must make a six-figure payment to recast. Reality: Minimums vary; many servicers accept smaller amounts, but you must confirm exact thresholds.
  • Myth: A recast always reduces the loan term. Reality: A recast typically keeps the original term unless you and the servicer agree to reamortize to a different schedule.

Short FAQs

  • Is a recast the same as reamortization? Lenders often use these terms interchangeably; both refer to recalculating monthly payments after a principal change.
  • Will a recast affect my mortgage interest deduction? Generally no—because you keep the same loan—but consult IRS Publication 936 or a tax professional for your facts and timing.

Sources and next steps

  • Consumer Financial Protection Bureau (CFPB) guidance on mortgage options and refinancing.
  • IRS Publication 936, Home Mortgage Interest Deduction (for tax questions).

Disclaimer

This article is educational and does not replace personalized financial, legal or tax advice. In my work advising homeowners, I find recasts are an underused option when clients have available principal to apply and want lower payments quickly. Always confirm loan-specific rules with your mortgage servicer and consult a tax or mortgage professional for decisions based on your circumstances.