Recast mortgage?

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shorekat14
Posts: 4
Joined: Wed May 09, 2018 6:44 am

Recast mortgage?

Post by shorekat14 » Wed May 16, 2018 9:17 pm

Took a 360k 30yr @ 3.875 in Feb of 2016 (MV of house conservatively $750k).

Monthly p&i $1,692. Paid mortgage down to $300k in a little over 2years. By doing this - and all else equal - I have pulled fwd the term 5years or so.

Got letter in mail from the lender today asking if I wanted to recast - so restretch the $300k @3.875 (no fee) back to original term. The come-on is it will "save me" $200+ per month (though lender will recapture about $40k in interest if I full term it).

My plan going fwd is each month pay ~$1k against principal. If I do that consistently - mortgagewill payoff Jan 2030.

Is there any benefit in recasting the $300k mortgage - keeping my same 3.875% rate - and "lowering" my monthly payment? While making that same $1k additional monthly principal payment?

Is this an obvious answer? Any way I can run the two situations in parallel to see what is more cost advantageous.

Quick financial summary
MFJ (no kids, no plan for kids) - both mid 30s, combined $300k annual income. Both maxing 401ks ($18,500). Approx $1M across cash/bonds/equity across taxable/tax deferred accounts.

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MP123
Posts: 672
Joined: Thu Feb 16, 2017 3:32 pm

Re: Recast mortgage?

Post by MP123 » Wed May 16, 2018 10:03 pm

I can see their interest in having you recast back to the original term but I don't see how it would help you. Will they recast to a 15 at a better rate?

I suppose it might give you some breathing room if things take a downturn but it sounds like you're well positioned to pay it off early.

bstewie
Posts: 45
Joined: Wed Oct 04, 2017 8:16 pm

Re: Recast mortgage?

Post by bstewie » Wed May 16, 2018 10:07 pm

Recast, invest the 1,200/mo in your taxable. Once you have enough to lump sum the remainder of the note, decide if you are still interested.

ThePrince
Posts: 319
Joined: Sun Aug 20, 2017 9:15 pm
Location: U.S.A.

Re: Recast mortgage?

Post by ThePrince » Wed May 16, 2018 10:08 pm

shorekat14 wrote:
Wed May 16, 2018 9:17 pm
Took a 360k 30yr @ 3.875 in Feb of 2016 (MV of house conservatively $750k).

Monthly p&i $1,692. Paid mortgage down to $300k in a little over 2years. By doing this - and all else equal - I have pulled fwd the term 5years or so.

Got letter in mail from the lender today asking if I wanted to recast - so restretch the $300k @3.875 (no fee) back to original term. The come-on is it will "save me" $200+ per month (though lender will recapture about $40k in interest if I full term it).

My plan going fwd is each month pay ~$1k against principal. If I do that consistently - mortgagewill payoff Jan 2030.

Is there any benefit in recasting the $300k mortgage - keeping my same 3.875% rate - and "lowering" my monthly payment? While making that same $1k additional monthly principal payment?

Is this an obvious answer? Any way I can run the two situations in parallel to see what is more cost advantageous.

Quick financial summary
MFJ (no kids, no plan for kids) - both mid 30s, combined $300k annual income. Both maxing 401ks ($18,500). Approx $1M across cash/bonds/equity across taxable/tax deferred accounts.
Something seems amiss:

When you recast your mortgage, you pay your lender a large sum toward your principal, and your loan is then reamortized — in other words, recalculated based on your new, lower balance. Your interest rate and term stay the same, but because your principal has decreased, your monthly payments will be lower.

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Watty
Posts: 13505
Joined: Wed Oct 10, 2007 3:55 pm

Re: Recast mortgage?

Post by Watty » Wed May 16, 2018 10:14 pm

shorekat14 wrote:
Wed May 16, 2018 9:17 pm
Got letter in mail from the lender today asking if I wanted to recast - so restretch the $300k @3.875 (no fee) back to original term. The come-on is it will "save me" $200+ per month (though lender will recapture about $40k in interest if I full term it).
Since there is no fee there is no downside since you can still keep paying more than the minimum amount that is due each month.

If interest rates keep going up then having the low interest mortgage could work out very well for you because after the recast the mortgage would go on longer.
shorekat14 wrote:
Wed May 16, 2018 9:17 pm

The come-on is it will "save me" $200+ per month......


Is there any benefit in recasting the $300k mortgage - keeping my same 3.875% rate - and "lowering" my monthly payment? While making that same $1k additional monthly principal payment?
(In made up numbers) The two scenarios might be;

1) You have a $2,000 a month mortgage payment and are sending them $3,000 a month now.

2) You recast and have a $1,800 a month mortgage payment and send then $3,000 a month in the future.

The situations would be identical until something changes and you decide to pay less each month.

SRenaeP
Posts: 736
Joined: Tue Jan 19, 2010 9:05 pm

Re: Recast mortgage?

Post by SRenaeP » Thu May 17, 2018 9:18 am

If there's no fee, I would do it. It's nice to have the flexibility of a lower payment if you need it. We recast a few months ago for the same reason. We still pay extra but it's nice to know our fixed monthly spending has decreased.

barnaclebob
Posts: 2802
Joined: Thu Aug 09, 2012 10:54 am

Re: Recast mortgage?

Post by barnaclebob » Thu May 17, 2018 9:34 am

Only do it if there is no fee. If you continue to make the same payment then there will be no benefit to you. The only benefit is more flexibility should you want to divert more cash elsewhere.

Jags4186
Posts: 2265
Joined: Wed Jun 18, 2014 7:12 pm

Re: Recast mortgage?

Post by Jags4186 » Thu May 17, 2018 9:39 am

A no cost way to lower your monthly nut? I’d do it in a heartbeat.

chevca
Posts: 1818
Joined: Wed Jul 26, 2017 11:22 am

Re: Recast mortgage?

Post by chevca » Thu May 17, 2018 9:40 am

If you have already paid it down aggressively, plan to keep paying it down aggressively, and don't need the lower minimum monthly payment, I would just leave it as is and pass on the recast. You have already shortened the mortgage by paying it down. I'm guessing you did this because you don't like paying interest. Just keep shortening it.

The only reason I could see to do it was if you wanted to stop paying it down aggressively, wanted to invest the extra instead, and the lower payment would be a little better for that.

daheld
Posts: 197
Joined: Wed Sep 13, 2017 8:14 am

Re: Recast mortgage?

Post by daheld » Thu May 17, 2018 11:38 am

If you need the monthly wiggle room of the amount of money you can save, then it's a good idea, particularly because there's no fee to recast. The further into the loan you get, the less it makes sense. We just bought a home and after the sale of our old home went through, we had a sizable amount of cash we could tack on to the loan. The fee to recast was $250. It made sense for us to be able to lower our monthly payment by $200 and pay down the loan by $40k. If you're in that situation, then go for it. You can still pay ahead and pay the loan off, but if something comes up (someone gets sick or loses a job), then you can make the monthly minimum payment.

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