pay off mortgage in 6 months or pay large chunk and recast it?

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PNW86
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pay off mortgage in 6 months or pay large chunk and recast it?

Post by PNW86 » Thu Mar 26, 2020 1:48 pm

Hi,

My wife and I have no debt other than our mortgage. We pay $400 a month in mortgage interest but take the standard deduction. Our goal is to be mortgage free and pay cash for our next home and to decrease what we are paying in interest until we are mortgage free.

We can either throw a large chunk of $ at our mortgage now and recast it (for $300), or wait about 6 months and pay it off. I am okay doing some paperwork and spending time recasting if it saves a few hundred dollars.

Current mortgage balance is $135k @3.5%.
We could throw $50k, or $75k, or possibly, but no more than $100k at it now. (I am trying to keep a larger emergency fund due to current circumstances. It is unlikely we would both be out of work, but I could lost income for a period of time and hey...isn’t the current pandemic the reason we keep 6 month emergency funds?)

I am confused at recasting as different sources seem to say different things. I assume if I paid off $75k now and recasted, my loan balance would now be $60k, and I would be paying 3.5% interest on $60k over the next 6 months until loan is paid off instead of paying it on $135k and then paying off the loan in full.

(We have no debt other than mortgage, contribute maximum on both 401k and both HSA accounts already).
Last edited by PNW86 on Thu Mar 26, 2020 2:01 pm, edited 1 time in total.

daheld
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Location: Midwest US

Re: pay off mortgage in 6 months or pay large chunk and recast it?

Post by daheld » Thu Mar 26, 2020 1:54 pm

Recasting will not save you money. You don't give enough detail to determine whether paying off so aggressively might or might not be prudent, but assuming it is then just pay it off in 6 months and don't worry about the recast.

Topic Author
PNW86
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Joined: Sat May 18, 2013 4:32 pm

Re: pay off mortgage in 6 months or pay large chunk and recast it?

Post by PNW86 » Thu Mar 26, 2020 5:02 pm

How is that true?

The online calculator I used suggested a reduction in interest paid:

Current P + I : 1,201 (current Interest $400)

After paying $75,000 and recasting:
P + I : $532 ( Interest $175)

This suggests I would come out ahead after 2 months. Is there something I am missing or do a lot of people on here not understand recasting?!

PizzaEater
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Re: pay off mortgage in 6 months or pay large chunk and recast it?

Post by PizzaEater » Thu Mar 26, 2020 5:13 pm

Online calculators (generally) assume you always make the minimum payment.

But that doesn't have to be the case. Just pay whatever you can afford towards the mortgage now (but be sure to specify that the extra payment above and beyond the amount due should be applied to principal!). Each month interest is calculated on the remaining balance - not the imaginary balance from the amortization schedule. So paying extra now will reduce the amount of interest you have to pay in the future. Recasting does nothing special except lower your minimum payment - but you don't plan on paying only that lower minimum payment. Hence, recasting is irrelevant for you.

PizzaEater
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Re: pay off mortgage in 6 months or pay large chunk and recast it?

Post by PizzaEater » Thu Mar 26, 2020 5:17 pm

The only gotcha is that the lender may limit the amount of extra payment you can apply. A previous mortgage I had with Bank of America limited me to $5,000 extra per month that I could add to my minimum payment. So maybe you could save a bit of money by putting $75k in at once and doing a recast, then making maximum available payments, then doing a final payoff once you have the cash. But personally in your situation I would just make the maximum payment allowed until having enough cash to do the final payoff, if they have such a restriction.

mortfree
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Re: pay off mortgage in 6 months or pay large chunk and recast it?

Post by mortfree » Thu Mar 26, 2020 5:23 pm

Pay a large amount now.

Don’t bother with the recast. Save yourself some fees. Otherwise that recast costs $50/month over 6 months.

Interest saved just like that with the large amount.

chevca
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Re: pay off mortgage in 6 months or pay large chunk and recast it?

Post by chevca » Thu Mar 26, 2020 7:09 pm

PNW86 wrote:
Thu Mar 26, 2020 5:02 pm
How is that true?

The online calculator I used suggested a reduction in interest paid:

Current P + I : 1,201 (current Interest $400)

After paying $75,000 and recasting:
P + I : $532 ( Interest $175)

This suggests I would come out ahead after 2 months. Is there something I am missing or do a lot of people on here not understand recasting?!
If you jut throw the $75k at the current mortgage now, your interest per month also goes to $175 for the monthly mortgage payment... and you don't pay the recast fee. And, you keep paying down a bigger chunk of principal keeping the current payment. Assuming you would pay the minimum either way.

There's really no point in recasting if you plan to pay it off so soon. If it were a cash flow to lower the monthly payment, maybe. But, that doesn't seem to be the case.

We understand recasting fine. Do you? :wink:

mbasherp
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Re: pay off mortgage in 6 months or pay large chunk and recast it?

Post by mbasherp » Fri Mar 27, 2020 9:09 am

Recasting makes sense when you want to keep the loan term but gain the benefit of smaller principal -> lower minimum payment. That benefit is what you pay $300 for.

In your case, it doesn't sound like you care about or need a smaller minimum payment. You'll get the same benefit of reduced interest (your stated goal) by just making that lump sum payment without recasting. Save the $300. Pay off what you can when you can, and it sounds like your mortgage will be gone in 6 months either way. A recast would be a $300 gift to the bank in your case.

fittan
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Re: pay off mortgage in 6 months or pay large chunk and recast it?

Post by fittan » Fri Mar 27, 2020 11:06 am

PNW86 wrote:
Thu Mar 26, 2020 5:02 pm
How is that true?

The online calculator I used suggested a reduction in interest paid:

Current P + I : 1,201 (current Interest $400)

After paying $75,000 and recasting:
P + I : $532 ( Interest $175)

This suggests I would come out ahead after 2 months. Is there something I am missing or do a lot of people on here not understand recasting?!
Your calculation seems correct....there will be some savings but not sure the juice is worth the squeeze. Assuming you save $225/month. That's $1350. The $75K if place in a online saving account earning 1.5% would earn you $562 over 6 months. Including the $300 recast fee, your final saving is about $488.

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willthrill81
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Re: pay off mortgage in 6 months or pay large chunk and recast it?

Post by willthrill81 » Fri Mar 27, 2020 11:14 am

mbasherp wrote:
Fri Mar 27, 2020 9:09 am
Recasting makes sense when you want to keep the loan term but gain the benefit of smaller principal -> lower minimum payment. That benefit is what you pay $300 for.

In your case, it doesn't sound like you care about or need a smaller minimum payment. You'll get the same benefit of reduced interest (your stated goal) by just making that lump sum payment without recasting. Save the $300. Pay off what you can when you can, and it sounds like your mortgage will be gone in 6 months either way. A recast would be a $300 gift to the bank in your case.
That's my take as well.

A 3.5% guaranteed, after-tax return is very competitive these days.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

nolesrule
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Re: pay off mortgage in 6 months or pay large chunk and recast it?

Post by nolesrule » Fri Mar 27, 2020 11:15 am

The point of a recast is to lower your required payment, not reduce interest. The reduction in interest is a byproduct of having to lower your balance to get ahead of the original amortization in order to actually perform a recast. This is required because the recast lowers your payment by resetting the end date and recaclulating the amortization table. You can't do that if you aren't already ahead of the original amortization.

If you then only make the new recast payment, you will pay down the loan slower than if you make the original required payment, because less will go to paying the loan balance each month. Interest is calculated on the loan balance, and the amount of your payment that goes toward reducing the loan balance is the difference between the payment amount and the interest paid in that payment.

Hyperchicken
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Re: pay off mortgage in 6 months or pay large chunk and recast it?

Post by Hyperchicken » Fri Mar 27, 2020 11:32 am

There's something off here, OP, your statements are at odds with each other.

Recasting does not affect interest calculation. It only reduces minimum payment. That's all it does.

You probably already realize this, but just in case - you can pay down your mortgage without recasting it.

If you're paying off your mortgage in 6 months like you're saying in your 1st post, then recasting is irrelevant. As others noted, recasting is for cases when you want to stretch out the rest of your mortgage back to its contractual term, after having it paid down.
PizzaEater wrote:
Thu Mar 26, 2020 5:17 pm
The only gotcha is that the lender may limit the amount of extra payment you can apply. A previous mortgage I had with Bank of America limited me to $5,000 extra per month that I could add to my minimum payment.
This may not be important to OP, but I thought I'd comment on this. The $5000 limitation with BofA is only when you're paying through their online banking web interface. You can pay as much extra as you want through a teller in a bank branch office.

fittan
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Re: pay off mortgage in 6 months or pay large chunk and recast it?

Post by fittan » Fri Mar 27, 2020 12:40 pm

Hyperchicken wrote:
Fri Mar 27, 2020 11:32 am
There's something off here, OP, your statements are at odds with each other.

Recasting does not affect interest calculation. It only reduces minimum payment. That's all it does.

You probably already realize this, but just in case - you can pay down your mortgage without recasting it.

If you're paying off your mortgage in 6 months like you're saying in your 1st post, then recasting is irrelevant. As others noted, recasting is for cases when you want to stretch out the rest of your mortgage back to its contractual term, after having it paid down.
PizzaEater wrote:
Thu Mar 26, 2020 5:17 pm
The only gotcha is that the lender may limit the amount of extra payment you can apply. A previous mortgage I had with Bank of America limited me to $5,000 extra per month that I could add to my minimum payment.
This may not be important to OP, but I thought I'd comment on this. The $5000 limitation with BofA is only when you're paying through their online banking web interface. You can pay as much extra as you want through a teller in a bank branch office.

I disagree with the statement that "recasting does not affect interest calculation. It only reduces minimum payment. That's all it does". I think it does.

My understanding is that recasting keeps the original interest rate and loan term. All it does is to generate a new amortization table. When you recast, the bank recalculates the mortgage payment based off the new paid-down principal. The term will not reset for another 30 years but whatever is remaining on the original term. If the principal and term changes, the mortgage gets reduces then the monthly principal and interest will all be change. So you can't say "it does not affect interest".

Hyperchicken
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Re: pay off mortgage in 6 months or pay large chunk and recast it?

Post by Hyperchicken » Fri Mar 27, 2020 12:49 pm

fittan wrote:
Fri Mar 27, 2020 12:40 pm
I disagree with the statement that "recasting does not affect interest calculation. It only reduces minimum payment. That's all it does". I think it does.

My understanding is that recasting keeps the original interest rate and loan term. All it does is to generate a new amortization table. When you recast, the bank recalculates the mortgage payment based off the new paid-down principal. The term will not reset for another 30 years but whatever is remaining on the original term. If the principal and term changes, the mortgage gets reduces then the monthly principal and interest will all be change. So you can't say "it does not affect interest".
Recasting reduces the minimum payment; interest is interest rate times principal balance, so recasting by itself does not change it. Making smaller payments does, though. Anyhow, I think what you're saying is a more elaborate version of what I was saying.

fittan
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Re: pay off mortgage in 6 months or pay large chunk and recast it?

Post by fittan » Fri Mar 27, 2020 1:03 pm

Hyperchicken wrote:
Fri Mar 27, 2020 12:49 pm
fittan wrote:
Fri Mar 27, 2020 12:40 pm
I disagree with the statement that "recasting does not affect interest calculation. It only reduces minimum payment. That's all it does". I think it does.

My understanding is that recasting keeps the original interest rate and loan term. All it does is to generate a new amortization table. When you recast, the bank recalculates the mortgage payment based off the new paid-down principal. The term will not reset for another 30 years but whatever is remaining on the original term. If the principal and term changes, the mortgage gets reduces then the monthly principal and interest will all be change. So you can't say "it does not affect interest".
Recasting reduces the minimum payment; interest is interest rate times principal balance, so recasting by itself does not change it. Making smaller payments does, though. Anyhow, I think what you're saying is a more elaborate version of what I was saying.
Recasting does change the principal balance (that's the whole point). In the case of OP, his original mortgage is $270K, he has paid down principal to $135K. Assuming he throws in the $75K to recast, the NEW principle is $60K. Everything is now based off this $60K. The interest rate remains at 3.5%. It's a new amortization table.

Hyperchicken
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Re: pay off mortgage in 6 months or pay large chunk and recast it?

Post by Hyperchicken » Fri Mar 27, 2020 1:06 pm

fittan wrote:
Fri Mar 27, 2020 1:03 pm
Recasting does change the principal balance (that's the whole point). In the case of OP, his original mortgage is $270K, he has paid down principal to $135K. Assuming he throws in the $75K to recast, the NEW principle is $60K. Everything is now based off this $60K. The interest rate remains at 3.5%. It's a new amortization table.
Sorry, what you said is wrong.

Paying the mortgage down reduces the principal balance. Recasting reduces the minimum payment. These are two separate transactions. One can be done without the other.

I can pay extra this year and recast next year. Or I can pay extra, and not recast. And if I recast but continue paying the same, nothing changes.

fittan
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Re: pay off mortgage in 6 months or pay large chunk and recast it?

Post by fittan » Fri Mar 27, 2020 1:47 pm

Hyperchicken wrote:
Fri Mar 27, 2020 1:06 pm
fittan wrote:
Fri Mar 27, 2020 1:03 pm
Recasting does change the principal balance (that's the whole point). In the case of OP, his original mortgage is $270K, he has paid down principal to $135K. Assuming he throws in the $75K to recast, the NEW principle is $60K. Everything is now based off this $60K. The interest rate remains at 3.5%. It's a new amortization table.
Sorry, what you said is wrong.

Paying the mortgage down reduces the principal balance. Recasting reduces the minimum payment. These are two separate transactions. One can be done without the other.

I can pay extra this year and recast next year. Or I can pay extra, and not recast. And if I recast but continue paying the same, nothing changes.
Let's pretend you're the bank...I recast and you calculate a new reduced monthly mortgage payment. Great, now I am gonna ask you a question...how did you calculate this new payment? Show me the amortization table. The bank provides the table. Under "balance" column....what do you think the first row will show? The original loan amount of $270K or the remainder of what you owe of $60K (in the case of OP after the $75K lump sum).

I would think it is $60K. If that is so, then EVERYTHING changes. Your principle and interest payment are both reduced (thereby the reduced monthly mortgage payment). Here's what I found about recasting.

What Is a Mortgage Recast?
A mortgage recast—also called a loan recast—is a feature in some types of mortgages where the remaining payments are recalculated based on a new amortization schedule. During a mortgage recasting, the borrower pays a large sum toward their principal, and their mortgage is then recalculated based on the new balance.

https://www.investopedia.com/terms/m/mortgagerecast.asp

Hyperchicken
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Re: pay off mortgage in 6 months or pay large chunk and recast it?

Post by Hyperchicken » Fri Mar 27, 2020 2:01 pm

fittan wrote:
Fri Mar 27, 2020 1:47 pm
Let's pretend you're the bank...I recast and you calculate a new reduced monthly mortgage payment. Great, now I am gonna ask you a question...how did you calculate this new payment? Show me the amortization table. The bank provides the table. Under "balance" column....what do you think the first row will show? The original loan amount of $270K or the remainder of what you owe of $60K (in the case of OP after the $75K lump sum).

I would think it is $60K. If that is so, then EVERYTHING changes. Your principle and interest payment are both reduced (thereby the reduced monthly mortgage payment). Here's what I found about recasting.

What Is a Mortgage Recast?
A mortgage recast—also called a loan recast—is a feature in some types of mortgages where the remaining payments are recalculated based on a new amortization schedule. During a mortgage recasting, the borrower pays a large sum toward their principal, and their mortgage is then recalculated based on the new balance.

https://www.investopedia.com/terms/m/mortgagerecast.asp
Your confusion stems from combining few independent transactions into one.

If I pay down the mortgage and not recast, I still have lower principal balance and pay lower interest. Hence, lower principal balance and lower interest have nothing to do with recasting.

If I recast but continue making the same payments, my principal balance and interest do not change. Hence, again, changes in principal balance and the interest are a separate effect.

If you clearly separate the three things in your mind - paying down the mortgage, recasting it, and reducing your payment - you would have a clearer picture.

What you wrote in the quoted post is correct but it describes the combined effect of paying down the mortgage and recasting.

fittan
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Re: pay off mortgage in 6 months or pay large chunk and recast it?

Post by fittan » Fri Mar 27, 2020 2:18 pm

Hyperchicken wrote:
Fri Mar 27, 2020 2:01 pm
fittan wrote:
Fri Mar 27, 2020 1:47 pm
Let's pretend you're the bank...I recast and you calculate a new reduced monthly mortgage payment. Great, now I am gonna ask you a question...how did you calculate this new payment? Show me the amortization table. The bank provides the table. Under "balance" column....what do you think the first row will show? The original loan amount of $270K or the remainder of what you owe of $60K (in the case of OP after the $75K lump sum).

I would think it is $60K. If that is so, then EVERYTHING changes. Your principle and interest payment are both reduced (thereby the reduced monthly mortgage payment). Here's what I found about recasting.

What Is a Mortgage Recast?
A mortgage recast—also called a loan recast—is a feature in some types of mortgages where the remaining payments are recalculated based on a new amortization schedule. During a mortgage recasting, the borrower pays a large sum toward their principal, and their mortgage is then recalculated based on the new balance.

https://www.investopedia.com/terms/m/mortgagerecast.asp
Your confusion stems from combining few independent transactions into one.

If I pay down the mortgage and not recast, I still have lower principal balance and pay lower interest. Hence, lower principal balance and lower interest have nothing to do with recasting.

If I recast but continue making the same payments, my principal balance and interest do not change. Hence, again, changes in principal balance and the interest are a separate effect.

If you clearly separate the three things in your mind - paying down the mortgage, recasting it, and reducing your payment - you would have a clearer picture.

What you wrote in the quoted post is correct but it describes the combined effect of paying down the mortgage and recasting.
I think you're the one who is making this confusing. The OP is asking a simple question. He wants to pay down AND recast and is asking if it will save him any interest over 6 month. My understanding is yes, there will be a reduced interest (due to a new amortization scedule). You're saying "recasting does not affect interest calculation" (I still don't know how that's possible).

You're interjecting with multiple scenarios that is not relevant to original question like "paying down but don't recast, recast but continue to make same payment".

Hyperchicken
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Re: pay off mortgage in 6 months or pay large chunk and recast it?

Post by Hyperchicken » Fri Mar 27, 2020 2:24 pm

fittan wrote:
Fri Mar 27, 2020 2:18 pm
I think you're the one who is making this confusing. The OP is asking a simple question. He wants to pay down AND recast and is asking if it will save him any interest over 6 month. My understanding is yes, there will be a reduced interest (due to a new amortization scedule). You're saying "recasting does not affect interest calculation" (I still don't know how that's possible).

You're interjecting with multiple scenarios that is not relevant to original question like "paying down but don't recast, recast but continue to make same payment".
My statement is simply this: recasting recalculates your minimum required payment. Period. That is hardly confusing.

Anyhow, I agree we should not drag this out for much longer, as OP has received all the information, and then some more on top of it.

FWIW, I think your understanding of mortgage mechanics is correct, but for whatever reason you chose to lump multiple separate transactions into one giant one, which muddies up the waters and leads to statements like "recasting reduces interest" which is provably wrong under a wide range of input parameters.

lotusflower
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Re: pay off mortgage in 6 months or pay large chunk and recast it?

Post by lotusflower » Fri Mar 27, 2020 3:10 pm

fittan wrote:
Fri Mar 27, 2020 1:47 pm
What Is a Mortgage Recast?
A mortgage recast—also called a loan recast—is a feature in some types of mortgages where the remaining payments are recalculated based on a new amortization schedule. During a mortgage recasting, the borrower pays a large sum toward their principal, and their mortgage is then recalculated based on the new balance.

https://www.investopedia.com/terms/m/mortgagerecast.asp
Right, but the amortization schedule does not determine the interest, only the interest rate does. The amortization schedule only determines how long it takes to pay off the loan at a fixed payment value, or its equivalent, how much a fixed payment you need to pay if you want to pay off the loan principal in some specific number of years. As the other posters mentioned, it only affects the minimum payment, as soon as you prepay some of the principal, the table becomes incorrect, but no one really cares, as long as you continue to pay the minimum payment.

The interest rate is required to calculate the amortization, but the interest due and payable at the beginning of every month is simply the annual interest rate, divided by 12, times the principal remaining on that day. You can look on your mortgage bill and calculate that for yourself; it's very easy.

chevca
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Re: pay off mortgage in 6 months or pay large chunk and recast it?

Post by chevca » Fri Mar 27, 2020 3:41 pm

fittan wrote:
Fri Mar 27, 2020 2:18 pm
Hyperchicken wrote:
Fri Mar 27, 2020 2:01 pm
fittan wrote:
Fri Mar 27, 2020 1:47 pm
Let's pretend you're the bank...I recast and you calculate a new reduced monthly mortgage payment. Great, now I am gonna ask you a question...how did you calculate this new payment? Show me the amortization table. The bank provides the table. Under "balance" column....what do you think the first row will show? The original loan amount of $270K or the remainder of what you owe of $60K (in the case of OP after the $75K lump sum).

I would think it is $60K. If that is so, then EVERYTHING changes. Your principle and interest payment are both reduced (thereby the reduced monthly mortgage payment). Here's what I found about recasting.

What Is a Mortgage Recast?
A mortgage recast—also called a loan recast—is a feature in some types of mortgages where the remaining payments are recalculated based on a new amortization schedule. During a mortgage recasting, the borrower pays a large sum toward their principal, and their mortgage is then recalculated based on the new balance.

https://www.investopedia.com/terms/m/mortgagerecast.asp
Your confusion stems from combining few independent transactions into one.

If I pay down the mortgage and not recast, I still have lower principal balance and pay lower interest. Hence, lower principal balance and lower interest have nothing to do with recasting.

If I recast but continue making the same payments, my principal balance and interest do not change. Hence, again, changes in principal balance and the interest are a separate effect.

If you clearly separate the three things in your mind - paying down the mortgage, recasting it, and reducing your payment - you would have a clearer picture.

What you wrote in the quoted post is correct but it describes the combined effect of paying down the mortgage and recasting.
I think you're the one who is making this confusing. The OP is asking a simple question. He wants to pay down AND recast and is asking if it will save him any interest over 6 month. My understanding is yes, there will be a reduced interest (due to a new amortization scedule). You're saying "recasting does not affect interest calculation" (I still don't know how that's possible).

You're interjecting with multiple scenarios that is not relevant to original question like "paying down but don't recast, recast but continue to make same payment".
You guys are basically saying the same thing, just arguing to say it. :happy

Recast - throw $75k at it, get balance down to $60k, and recast makes a new amortization schedule based off 3.5% and however many years left. Interest based off $60k balance.

Don't recast but throw $75k at current mortgage - balance also down to $60k, current amortization schedule reduced greatly by extra payment, and current payment changed greatly as far as P&I, but still based off 3.5%... Interest based off $60k balance.

$60k x .035/12 = $175.... that's the monthly interest payment in BOTH scenarios above.

I.E. unless a lower payment is needed for 6 months, there's no point in recasting. If willing to throw $75k at the mortgage, just throw it at the mortgage now, lower interest paid each month, skip the recast, and pay it all the way off in 6 months.

JGoneRiding
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Re: pay off mortgage in 6 months or pay large chunk and recast it?

Post by JGoneRiding » Sat Mar 28, 2020 11:30 am

fittan wrote:
Fri Mar 27, 2020 2:18 pm
Hyperchicken wrote:
Fri Mar 27, 2020 2:01 pm
fittan wrote:
Fri Mar 27, 2020 1:47 pm
Let's pretend you're the bank...I recast and you calculate a new reduced monthly mortgage payment. Great, now I am gonna ask you a question...how did you calculate this new payment? Show me the amortization table. The bank provides the table. Under "balance" column....what do you think the first row will show? The original loan amount of $270K or the remainder of what you owe of $60K (in the case of OP after the $75K lump sum).

I would think it is $60K. If that is so, then EVERYTHING changes. Your principle and interest payment are both reduced (thereby the reduced monthly mortgage payment). Here's what I found about recasting.

What Is a Mortgage Recast?
A mortgage recast—also called a loan recast—is a feature in some types of mortgages where the remaining payments are recalculated based on a new amortization schedule. During a mortgage recasting, the borrower pays a large sum toward their principal, and their mortgage is then recalculated based on the new balance.

https://www.investopedia.com/terms/m/mortgagerecast.asp
Your confusion stems from combining few independent transactions into one.

If I pay down the mortgage and not recast, I still have lower principal balance and pay lower interest. Hence, lower principal balance and lower interest have nothing to do with recasting.

If I recast but continue making the same payments, my principal balance and interest do not change. Hence, again, changes in principal balance and the interest are a separate effect.

If you clearly separate the three things in your mind - paying down the mortgage, recasting it, and reducing your payment - you would have a clearer picture.

What you wrote in the quoted post is correct but it describes the combined effect of paying down the mortgage and recasting.
I think you're the one who is making this confusing. The OP is asking a simple question. He wants to pay down AND recast and is asking if it will save him any interest over 6 month. My understanding is yes, there will be a reduced interest (due to a new amortization scedule). You're saying "recasting does not affect interest calculation" (I still don't know how that's possible).

You're interjecting with multiple scenarios that is not relevant to original question like "paying down but don't recast, recast but continue to make same payment".
Omg! Paying bff down the principal is what saves the interest. The bank immediately begins using the lower principal amount. Without a recast the bank continues to require the ORIGINAL agreed to payment but the interest is calculated on the current principle balance. If he pays a chunk of money and does NOT recast he will actually save MORE interest.

Please just look at an excel sheet!

Topic Author
PNW86
Posts: 39
Joined: Sat May 18, 2013 4:32 pm

Re: pay off mortgage in 6 months or pay large chunk and recast it?

Post by PNW86 » Sat Mar 28, 2020 12:05 pm

I understand now, thanks to everyone’s help.

I hope that this post provides clarification to others.

I will plan to pay a chunk down now, which will reduce the interest for my next payment as it will reduce the principle that the interest is calculated on, then pay off the loan as fast as possible.

rterickson
Posts: 242
Joined: Fri May 01, 2015 3:48 pm

Re: pay off mortgage in 6 months or pay large chunk and recast it?

Post by rterickson » Sat Mar 28, 2020 3:16 pm

chevca wrote:
Fri Mar 27, 2020 3:41 pm


You guys are basically saying the same thing, just arguing to say it. :happy

Recast - throw $75k at it, get balance down to $60k, and recast makes a new amortization schedule based off 3.5% and however many years left. Interest based off $60k balance.

Don't recast but throw $75k at current mortgage - balance also down to $60k, current amortization schedule reduced greatly by extra payment, and current payment changed greatly as far as P&I, but still based off 3.5%... Interest based off $60k balance.


$60k x .035/12 = $175.... that's the monthly interest payment in BOTH scenarios above.

I.E. unless a lower payment is needed for 6 months, there's no point in recasting. If willing to throw $75k at the mortgage, just throw it at the mortgage now, lower interest paid each month, skip the recast, and pay it all the way off in 6 months.
I don't think this part is correct.

Making a large principal payment will dramatically increase the principal fraction of the payment and reduce the interest fraction, but the total monthly payment amount will remain unchanged from when the mortgage was originated. It's not clear whether you were implying that the payment would actually go down.

RE

chevca
Posts: 3473
Joined: Wed Jul 26, 2017 11:22 am

Re: pay off mortgage in 6 months or pay large chunk and recast it?

Post by chevca » Sat Mar 28, 2020 4:57 pm

rterickson wrote:
Sat Mar 28, 2020 3:16 pm
chevca wrote:
Fri Mar 27, 2020 3:41 pm


You guys are basically saying the same thing, just arguing to say it. :happy

Recast - throw $75k at it, get balance down to $60k, and recast makes a new amortization schedule based off 3.5% and however many years left. Interest based off $60k balance.

Don't recast but throw $75k at current mortgage - balance also down to $60k, current amortization schedule reduced greatly by extra payment, and current payment changed greatly as far as P&I, but still based off 3.5%... Interest based off $60k balance.


$60k x .035/12 = $175.... that's the monthly interest payment in BOTH scenarios above.

I.E. unless a lower payment is needed for 6 months, there's no point in recasting. If willing to throw $75k at the mortgage, just throw it at the mortgage now, lower interest paid each month, skip the recast, and pay it all the way off in 6 months.
I don't think this part is correct.

Making a large principal payment will dramatically increase the principal fraction of the payment and reduce the interest fraction, but the total monthly payment amount will remain unchanged from when the mortgage was originated. It's not clear whether you were implying that the payment would actually go down.

RE
We're saying the same thing. :happy

I did not mean the payment amount would change.

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