Quick answer

Recast when you have a lump sum to cut monthly payments, want to keep your existing rate and loan term, and prefer low fees and a fast turnaround. Refinance when you need a lower interest rate, want to change the loan term, or need to tap equity (cash-out) — even if that requires closing costs.

How recasting works (in plain terms)

  • You make a significant principal payment (many lenders set a minimum, commonly $5,000–$25,000).
  • The servicer recalculates future monthly payments using the same interest rate and remaining term.
  • You pay a reprocessing fee (often $150–$500) instead of full refinance closing costs.

These ranges vary by lender—always confirm policy and amounts with your servicer (many details available from the Consumer Financial Protection Bureau: https://www.consumerfinance.gov).

Why choose recast over refinance: pros and cons

Pros

  • Lower upfront costs: a small administrative fee versus 2–5% in refinance closing costs.
  • Fast: many servicers process a recast in days to a few weeks.
  • Keeps your interest rate and loan terms (useful if your rate is below today’s market).
  • No new credit check or underwriting in most cases.

Cons

  • Interest rate does not change, so recast won’t save interest if rates have fallen.
  • Requires a substantial lump-sum payment.
  • Not all loans or servicers allow recasts; government-backed loans may have restrictions—confirm with your loan servicer.

When recasting usually makes more sense

  • You have a large, one-time cash inflow (inheritance, bonus, sale of assets) and want lower monthly payments without losing a low fixed rate.
  • You’re close to the end of your mortgage term and the savings from refinancing won’t cover closing costs.
  • You want to avoid the time, paperwork, or credit pull of refinancing.

When to refinance instead

  • Market rates are meaningfully lower and you’ll recoup closing costs within your planned time in the house.
  • You want a shorter (or longer) loan term to change amortization.
  • You need to convert equity to cash (cash-out refinance) or change loan type (adjustable ↔ fixed).

Practical example

In practice, a $50,000 principal payment on a $300,000, 30-year fixed loan at 4.00% reduces the principal to $250,000. With the same rate and remaining term, monthly principal-and-interest payments fall roughly in line with the reduced balance (exact amounts depend on how far into the loan you are). Use a mortgage amortization tool or ask your servicer for an updated payment schedule to see exact savings.

Checklist before you recast

  • Confirm your servicer allows recasts and the minimum principal required.
  • Get the exact recast fee and processing time in writing.
  • Ask whether the recast changes the loan term or only the monthly payment.
  • Compare the total cost and break-even vs. a refinance (closing costs vs. recast fee + lost opportunity cost of the lump sum).
  • Check tax implications if you’re considering withdrawing funds to recast — consult a tax advisor (interest deduction rules can change; see IRS guidance).

Common mistakes I see working with homeowners

  • Assuming recast cuts your interest rate. It doesn’t — the rate stays the same.
  • Not confirming whether the servicer will reduce the monthly payment or shorten the term. Most recasts lower the payment and keep the same term, but policies differ.
  • Using funds that create a higher-cost emergency (avoid depleting all liquidity for a recast).

Quick FAQs

Q: Can I recast more than once?
A: Often yes, if your lender permits multiple recasts, but check servicer rules and any minimums. (Policies vary.)

Q: Do government-backed loans allow recasts?
A: Many conventional loans are eligible; some government-backed programs (FHA, VA, USDA) and servicing arrangements may restrict recasts—always confirm with your loan servicer.

Related reading on FinHelp

Sources and next steps

In my practice with 500+ homeowners, recasts often make sense when clients value speed, low fees, and keeping a favorable rate. This is educational information only — consult your mortgage servicer and a licensed financial or tax advisor to decide for your situation.