Recast a mortgage right at the begining

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joub7362
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Joined: Tue May 17, 2016 10:59 pm

Recast a mortgage right at the begining

Post by joub7362 »

All,

Here's my case. I am currently buying house, say for 500K.
I want to put 300K down and borrow 200K from say Bank of America. At 3%that makes a mortgage of $1400 monthly (i'm ignoring the escrow for simplicity).

Unfortunately, among the 300K of my down payment, the bank is not able to verify the origin of 200K, so i can just use 100K (which is the 20% minimum required).
So I will do a loan of 400K (instead of 200) and will put down 100K, hence my monthly will be $2800. The lender advises me to do this; and as soon as i close on my house i go to Bank of America and request a mortgage recast by putting 200K (in that case the origin of the money is not a problem). According to him I should end up paying exactly what I wanted to do in the first place (which was to borrow only 200K).

He says it will be no problem to do this, but sounds weird that i cannot use the money for down payment but is okay for mortgage recast.

My questions are: 1/ is this even legal / okay? 2/ will my monthly payments be actually the same as if i had borrowed 200K whereas i borrowed 400K but compensated directly 200K. 3/ is this technically possible to recast a mortgage even though i haven't even started to pay the first monthly payment? May the bank say i need to way 12 months before doing a mortgage recast?

Thanks.
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nps
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Re: Recast a mortgage right at the begining

Post by nps »

It should be legal and the math should work out close to what it would have been if it was part of the down payment, but recasting requires the agreement of the servicer. I wouldn't trust the broker on what the servicer would allow, or when.
orca91
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Re: Recast a mortgage right at the begining

Post by orca91 »

I would guess denying a recast doesn't happen all that much, but it is up to the bank whether or not they do the recast. They can say no. The recast would/should lower your monthly payment after it's done.

Why can't they verify the origin of the $200k? Have you tried other banks/lenders?

I wouldn't trust the situation this lender is laying out for you. I don't know for sure, but seems like some self interest for the lender going on.
Topic Author
joub7362
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Re: Recast a mortgage right at the begining

Post by joub7362 »

The 200K comes from my bank in Europe.
Over there they are lazy and don't want to provide proofs of the funds origin beyond the transfer details.
jaj2276
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Re: Recast a mortgage right at the begining

Post by jaj2276 »

I'm not familiar with the official term of recast but I just closed on a house yesterday with a minimum down payment. Once my current house sells I will then use those proceeds and apply it to the new mortgage and reamortize it. My lender allows this but only after 6 months (I guess they at least get 6 months of good interest) and for a $250 fee.

I too would contact the lender and ask about their policies.
orca91
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Re: Recast a mortgage right at the begining

Post by orca91 »

joub7362 wrote:The 200K comes from my bank in Europe.
Over there they are lazy and don't want to provide proofs of the funds origin beyond the transfer details.
I can see where that might cause some complications.

The recast thing may actually be a good strategy from the lender, if that's the case. I assumed the lender may be looking out for their own there. I shouldn't do that, I guess.
Topic Author
joub7362
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Re: Recast a mortgage right at the begining

Post by joub7362 »

Hey Orca, I'm not sure why you said you "shouldn't do that". Mind elaborating a bit please?
orca91
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Re: Recast a mortgage right at the begining

Post by orca91 »

I shouldn't automatically assume bad things about lenders. :happy

They may actually be giving you good advice for your situation.
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goingup
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Re: Recast a mortgage right at the begining

Post by goingup »

Does the interest rate change when you recast your mortgage? Same interest rate and term, but only the amount financed changes? I'm unclear how it really plays out.
orca91
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Re: Recast a mortgage right at the begining

Post by orca91 »

In a true recast, the interest rate would stay the same.
mikep
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Re: Recast a mortgage right at the begining

Post by mikep »

The bank usually charges a fee for recast, maybe $250. I would negotiate with them to take whatever the recast cost is off of your closing costs upfront since they are the one causing the problem in the first place.
vk8216
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Re: Recast a mortgage right at the begining

Post by vk8216 »

My husband and I just bought a house and our lender was very strict about knowing where our down payment funds were originating from which I think is standard practice these days. We just spoke to our lender (Wells Fargo) about recasting our loan and we can recast our mortgage at any time without a fee so long as we apply at least $20,000 towards the principal. I think recasting is a great option especially with how low interest rates are these days. I think your lender is giving you good advice.
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dm200
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Re: Recast a mortgage right at the begining

Post by dm200 »

Why not just pay down a signficant lump sum to be applied to principal only. Then just plan on making the required monthly payments on the original loan unless and until other significant changes happen?
Pharmacist
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Re: Recast a mortgage right at the begining

Post by Pharmacist »

dm200 wrote:Why not just pay down a signficant lump sum to be applied to principal only. Then just plan on making the required monthly payments on the original loan unless and until other significant changes happen?
His monthly payment would still be $2800 after he paid the 200k which he doesn't want.

I personally would just shop for a different lender. Even if what they laid out for you is correct it's still a hassle and who knows what could go wrong.
remomnyc
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Re: Recast a mortgage right at the begining

Post by remomnyc »

A recast is not a big deal, but get it in writing from the lender and any restrictions (e.g., not before the 6th month, not after the 1st year, not more than once during the term, etc). A typical recast simply applies any principal and recalculates the monthly payment based on the remaining term at the same interest rate, but again, confirm with your lender.
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nps
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Re: Recast a mortgage right at the begining

Post by nps »

Does BOA service all its loans? If the loan is sold I believe it is up to the servicer, not the original lender. Anything the lender would have given you or told you might not apply.
Topic Author
joub7362
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Re: Recast a mortgage right at the begining

Post by joub7362 »

I am trying to see if there will be any recurring cost of doing that recasting.
Normally, i should end up paying exactly the same amount each month...
...except that originally i was putting like 65% down and was not mandated to get a mortgage insurance. Now that the down payment will become 20% or so, will i be subject to mortgage interest? And how is it usually?
Topic Author
joub7362
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Re: Recast a mortgage right at the begining

Post by joub7362 »

remomnyc wrote:A recast is not a big deal, but get it in writing from the lender and any restrictions (e.g., not before the 6th month, not after the 1st year, not more than once during the term, etc). A typical recast simply applies any principal and recalculates the monthly payment based on the remaining term at the same interest rate, but again, confirm with your lender.
The lender verbally said it would be no problem to inject money to the principal and request a recast even before the first mortgage payment.
The lender is an employee of BofA, and it's BofA that is lending me the money... do i still need to get this in writing?
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grabiner
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Re: Recast a mortgage right at the begining

Post by grabiner »

Rather than recast, another alternative would be to immediately refinance to a 15-year loan after you have made the payment. With the lower principal amount, you should be able to qualify for the higher payments on a 15-year loan, and you will save on interest.
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remomnyc
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Re: Recast a mortgage right at the begining

Post by remomnyc »

joub7362, yes, you need the recast provision to be part of the loan agreement; otherwise, BoA can accept your principal payment the day after the loan closes and reduce your balance but leave your monthly payment the same.

I disagree about closing and refinancing. Refinancing comes with costs that a recast does not.
TheGreyingDuke
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Re: Recast a mortgage right at the begining

Post by TheGreyingDuke »

I may be missing something but...

Why not move the money from the European bank into an account onshore, where the money could be verified??
"Every time I see an adult on a bicycle, I no longer despair for the future of the human race." H.G. Wells
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nps
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Re: Recast a mortgage right at the begining

Post by nps »

The funds most likely wouldn't be considered to be seasoned, so the problem would be the same.
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Kosmo
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Re: Recast a mortgage right at the begining

Post by Kosmo »

joub7362 wrote:The lender verbally said it would be no problem to inject money to the principal and request a recast even before the first mortgage payment.
The lender is an employee of BofA, and it's BofA that is lending me the money... do i still need to get this in writing?
Get everything in writing. The particular person you spoke to may have no idea what you're talking about or may not have the authority to say something about it. From my experience in similar situations, the legitimacy/veracity/accuracy of the answer is far less important to these people than the fact that they provided an answer.

Also, requesting a recast does not mean it will be granted. Or they may tack on additional stipulations/requirements to grant it.
dk240t
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Re: Recast a mortgage right at the begining

Post by dk240t »

Could just get a no-cost mortgage (higher rate to get credit to cover closing costs), then pay it down and refinance with the mortgage you really want right away.
starguru
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Re: Recast a mortgage right at the begining

Post by starguru »

We are closing on a new home in 2 months and plan to recast. You need to verify how the lender handles recasts. Wells Fargo (evidently, asked as they are the lender on our current mortgage) allows you to recast whenever you want with no fees. Another potential mortgage lender we might use allows one recast a year and charges 250.
larmewar
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Re: Recast a mortgage right at the begining

Post by larmewar »

Expect to make the higher monthly payment until the the recast has been processed. My recast took almost three months to process, so 2-3 months at the previous PI payment. The difference in payments ends up going against the principal, so it isn't lost.

Lar
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