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
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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
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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
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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
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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
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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
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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
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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
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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
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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.

Mako52
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Re: Recast mortgage?

Post by Mako52 » Tue Jan 08, 2019 4:12 pm

I've been exploring this of late in a volatile interest rate environment and comparing refinancing options with recasting our 30 year at 4.125, which has ~19 years left.

With a recast, if you compare the savings between now and the time you want to move (9 years in our case) in (1) monthly payments, (2) interest paid, (3) principal paid, and (4) mortgage balance at moving time against current mortgage......

In our scenario, going to 30 year fixed at 4.375 and paying it down by 110k upfront, even though the monthly nut is the lowest, is terrible.
20 year fixed at 4.25 vs recasting at 4.125 is kind of a wash, but closing costs make it a "not worth it".

Compared to our current loan, recasting with a 110k lump sum would save us 79k in monthly payments (good), 45k less interest (good), 57k in less principal (bad), but reduce mortgage balance in 2028 by 67k (good)

Is this the right way to look at this?

barnaclebob
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Re: Recast mortgage?

Post by barnaclebob » Tue Jan 08, 2019 4:19 pm

Mako52 wrote:
Tue Jan 08, 2019 4:12 pm
I've been exploring this of late in a volatile interest rate environment and comparing refinancing options with recasting our 30 year at 4.125, which has ~19 years left.

With a recast, if you compare the savings between now and the time you want to move (9 years in our case) in (1) monthly payments, (2) interest paid, (3) principal paid, and (4) mortgage balance at moving time against current mortgage......

In our scenario, going to 30 year fixed at 4.375 and paying it down by 110k upfront, even though the monthly nut is the lowest, is terrible.
20 year fixed at 4.25 vs recasting at 4.125 is kind of a wash, but closing costs make it a "not worth it".

Compared to our current loan, recasting with a 110k lump sum would save us 79k in monthly payments (good), 45k less interest (good), 57k in less principal (bad), but reduce mortgage balance in 2028 by 67k (good)

Is this the right way to look at this?
Your post is a little confusing and hints that you might not understand some basics.

If you are going to be making the same lump payment and same monthly payments in all scenarios then there would be no reason to refi into a higher rate. Recasting does not "save" you money, it just reduces your required monthly payment while extending your minimum payments back out to the original payoff date. All that matters for how much interest is paid is your balanced owed over the time you owe it and the interest rate. Recasting is used to solve cash flow issues, not paying less in interest or paying off sooner.

I don't understand what you mean by making a 110k lump payment and then recasting would mean 57k less in principle and a reduced mortgage balance of 67k in 2028. If you make a lump payment, your balance is reduced right then and there by that much and now you aren't paying any interest on it for the rest of your loan.

NextMil
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Re: Recast mortgage?

Post by NextMil » Tue Jan 08, 2019 4:40 pm

I did it, and just moved the difference to principal curtailment. Only benefit is flexibility, but I like having the flexibility, that I hope to never need.

Make sure there isn’t a hook that penalizes early payment.

Golf maniac
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Location: Florida

Re: Recast mortgage?

Post by Golf maniac » Tue Jan 08, 2019 10:58 pm

NextMil wrote:
Tue Jan 08, 2019 4:40 pm
I did it, and just moved the difference to principal curtailment. Only benefit is flexibility, but I like having the flexibility, that I hope to never need.

Make sure there isn’t a hook that penalizes early payment.
Agree with above

overthought
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Joined: Tue Oct 17, 2017 3:44 am

Re: Recast mortgage?

Post by overthought » Tue Jan 08, 2019 11:22 pm

Golf maniac wrote:
Tue Jan 08, 2019 10:58 pm
NextMil wrote:
Tue Jan 08, 2019 4:40 pm
I did it, and just moved the difference to principal curtailment. Only benefit is flexibility, but I like having the flexibility, that I hope to never need.

Make sure there isn’t a hook that penalizes early payment.
Agree with above
Same here. Make sure the spidery print doesn't hide anything objectionable and go for it, purely for the sleep-well factor.

I always make two budgets for a given year: The "normal" one (assuming no sudden job loss or other life changes), and a "batten down the hatches" emergency budget that assumes zero income and substantial medical bills approaching max out of pocket. The "normal" budget is salary-supported, and includes paying extra on the mortgage every month, retirement contributions, vacations, etc. The "emergency" budget is supported by the emergency fund and includes only the bare essentials.

I figure my ability to weather a financial crisis is inversely related to the size of that emergency budget, and a $1500/mo house payment is definitely one of its bigger components; recasting the minimum payment down by several thousand per year has a marvelous effect on the "emergency" budget while not affecting the "normal" budget at all. If neither the amounts nor the amortization period were dictating what you actually paid before, why should that change after a recast?

rightdecisions
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Re: Recast mortgage?

Post by rightdecisions » Tue Jan 08, 2019 11:30 pm

I would keep life the way it is and keep pouring money into the current loan. The flexibility is very small reason to make the change considering your details. Who cares if its free. They are hoping you take the foot off the gas and get more interest from you. Stay focused and keep your original course.

JuniorBH
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Re: Recast mortgage?

Post by JuniorBH » Wed Jan 09, 2019 12:41 pm

I would go ahead and recast. If you're going to keep making the same payment regardless, might as well have the extra wiggle room if you needed to revert back to only making the required monthly payment.

Mako52
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Re: Recast mortgage?

Post by Mako52 » Wed Jan 09, 2019 3:26 pm

barnaclebob wrote:
Tue Jan 08, 2019 4:19 pm
Mako52 wrote:
Tue Jan 08, 2019 4:12 pm
I've been exploring this of late in a volatile interest rate environment and comparing refinancing options with recasting our 30 year at 4.125, which has ~19 years left.

With a recast, if you compare the savings between now and the time you want to move (9 years in our case) in (1) monthly payments, (2) interest paid, (3) principal paid, and (4) mortgage balance at moving time against current mortgage......

In our scenario, going to 30 year fixed at 4.375 and paying it down by 110k upfront, even though the monthly nut is the lowest, is terrible.
20 year fixed at 4.25 vs recasting at 4.125 is kind of a wash, but closing costs make it a "not worth it".

Compared to our current loan, recasting with a 110k lump sum would save us 79k in monthly payments (good), 45k less interest (good), 57k in less principal (bad), but reduce mortgage balance in 2028 by 67k (good)

Is this the right way to look at this?
Your post is a little confusing and hints that you might not understand some basics.

If you are going to be making the same lump payment and same monthly payments in all scenarios then there would be no reason to refi into a higher rate. Recasting does not "save" you money, it just reduces your required monthly payment while extending your minimum payments back out to the original payoff date. All that matters for how much interest is paid is your balanced owed over the time you owe it and the interest rate. Recasting is used to solve cash flow issues, not paying less in interest or paying off sooner.

I don't understand what you mean by making a 110k lump payment and then recasting would mean 57k less in principle and a reduced mortgage balance of 67k in 2028. If you make a lump payment, your balance is reduced right then and there by that much and now you aren't paying any interest on it for the rest of your loan.
I did not phrase this well and flubbed a cell in my analysis. But the bottom line is that if your recast is small, you could potentially end up with a higher mortgage balance than you otherwise would if you choose to sell the home before the mortgage pays off entirely. In our case that recast amount is roughly 15% of our mortgage balance. Anything above that and you're ahead. There is a crossover point depending on the particular rate.

Wells Fargo told me that recasting would make the maturity date the same as our original 30 year, even though we are currently four years ahead of schedule due to extra principal payments.

barnaclebob
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Re: Recast mortgage?

Post by barnaclebob » Wed Jan 09, 2019 3:34 pm

Mako52 wrote:
Wed Jan 09, 2019 3:26 pm
I did not phrase this well and flubbed a cell in my analysis. But the bottom line is that if your recast is small, you could potentially end up with a higher mortgage balance than you otherwise would if you choose to sell the home before the mortgage pays off entirely. In our case that recast amount is roughly 15% of our mortgage balance. Anything above that and you're ahead. There is a crossover point depending on the particular rate.

Wells Fargo told me that recasting would make the maturity date the same as our original 30 year, even though we are currently four years ahead of schedule due to extra principal payments.
Yes, You'll definitely have a higher balance if you recast and then pay less than you were. Your post is still confusing, there is no "crossover point' with recasting, its just stretching out a loan.

Admiral
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Re: Recast mortgage?

Post by Admiral » Wed Jan 09, 2019 3:37 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.
I would not. You have plenty of money. Why pay more interest than you have to? I would refinance to a 15 year loan, and if you have spare money, you could pay down the principal and finance a smaller amount, thus lowering your payment. Why do you need a lower payment if you have all this spare $ that you're pre-paying anyway? (Doing a refi assumes a favorable rate, 15 vs 30). You're crazy to pay down principal by that much at that rate. My $.02.

SRenaeP
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Re: Recast mortgage?

Post by SRenaeP » Wed Jan 09, 2019 3:54 pm

barnaclebob wrote:
Wed Jan 09, 2019 3:34 pm
Mako52 wrote:
Wed Jan 09, 2019 3:26 pm
I did not phrase this well and flubbed a cell in my analysis. But the bottom line is that if your recast is small, you could potentially end up with a higher mortgage balance than you otherwise would if you choose to sell the home before the mortgage pays off entirely. In our case that recast amount is roughly 15% of our mortgage balance. Anything above that and you're ahead. There is a crossover point depending on the particular rate.

Wells Fargo told me that recasting would make the maturity date the same as our original 30 year, even though we are currently four years ahead of schedule due to extra principal payments.
Yes, You'll definitely have a higher balance if you recast and then pay less than you were. Your post is still confusing, there is no "crossover point' with recasting, its just stretching out a loan.
Recasting is not stretching out a loan. It is merely re-amortizing the existing balance. Recast or not, the term and interest rate stay the same.

Mako52
Posts: 96
Joined: Mon Jul 30, 2018 11:07 am

Re: Recast mortgage?

Post by Mako52 » Wed Jan 09, 2019 4:00 pm

barnaclebob wrote:
Wed Jan 09, 2019 3:34 pm
Mako52 wrote:
Wed Jan 09, 2019 3:26 pm
I did not phrase this well and flubbed a cell in my analysis. But the bottom line is that if your recast is small, you could potentially end up with a higher mortgage balance than you otherwise would if you choose to sell the home before the mortgage pays off entirely. In our case that recast amount is roughly 15% of our mortgage balance. Anything above that and you're ahead. There is a crossover point depending on the particular rate.

Wells Fargo told me that recasting would make the maturity date the same as our original 30 year, even though we are currently four years ahead of schedule due to extra principal payments.
Yes, You'll definitely have a higher balance if you recast and then pay less than you were. Your post is still confusing, there is no "crossover point' with recasting, its just stretching out a loan.
If I recast our loan with a $25,000 payment now, there will be a higher mortgage balance when we sell our house in 9 years (NOT in 22 years, when it would otherwise be paid off) that would offset the savings in interest and monthly P&I payments between now and then.

Admiral
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Joined: Mon Oct 27, 2014 12:35 pm

Re: Recast mortgage?

Post by Admiral » Wed Jan 09, 2019 4:05 pm

SRenaeP wrote:
Wed Jan 09, 2019 3:54 pm
barnaclebob wrote:
Wed Jan 09, 2019 3:34 pm
Mako52 wrote:
Wed Jan 09, 2019 3:26 pm
I did not phrase this well and flubbed a cell in my analysis. But the bottom line is that if your recast is small, you could potentially end up with a higher mortgage balance than you otherwise would if you choose to sell the home before the mortgage pays off entirely. In our case that recast amount is roughly 15% of our mortgage balance. Anything above that and you're ahead. There is a crossover point depending on the particular rate.

Wells Fargo told me that recasting would make the maturity date the same as our original 30 year, even though we are currently four years ahead of schedule due to extra principal payments.
Yes, You'll definitely have a higher balance if you recast and then pay less than you were. Your post is still confusing, there is no "crossover point' with recasting, its just stretching out a loan.
Recasting is not stretching out a loan. It is merely re-amortizing the existing balance. Recast or not, the term and interest rate stay the same.
Actually, it is, in the sense that you're going back to the original term (starting over) regardless of where you are on the payment schedule. The banks like it because they get more interest in the early years of the loan. You're almost always better of with a refinance to a shorter term unless there is some huge delta in rates.

barnaclebob
Posts: 3778
Joined: Thu Aug 09, 2012 10:54 am

Re: Recast mortgage?

Post by barnaclebob » Wed Jan 09, 2019 4:34 pm

Mako52 wrote:
Wed Jan 09, 2019 4:00 pm
barnaclebob wrote:
Wed Jan 09, 2019 3:34 pm
Mako52 wrote:
Wed Jan 09, 2019 3:26 pm
I did not phrase this well and flubbed a cell in my analysis. But the bottom line is that if your recast is small, you could potentially end up with a higher mortgage balance than you otherwise would if you choose to sell the home before the mortgage pays off entirely. In our case that recast amount is roughly 15% of our mortgage balance. Anything above that and you're ahead. There is a crossover point depending on the particular rate.

Wells Fargo told me that recasting would make the maturity date the same as our original 30 year, even though we are currently four years ahead of schedule due to extra principal payments.
Yes, You'll definitely have a higher balance if you recast and then pay less than you were. Your post is still confusing, there is no "crossover point' with recasting, its just stretching out a loan.
If I recast our loan with a $25,000 payment now, there will be a higher mortgage balance when we sell our house in 9 years (NOT in 22 years, when it would otherwise be paid off) that would offset the savings in interest and monthly P&I payments between now and then.
You are going to have to post what your baseline is if you want good advice. Example:

Scenario 1: Stay with original mortgage, pay 2500 a month min payment and an extra 500 a month in extra principle, 3000 total. Interest paid in 9 years, 25k, Balance when we sell: YYYYYY.YY

Scenario 2: Stay with original mortgage, make a lump sum payment of 25k, pay 2500 a month min payment after that. Interest paid in 9 years $XXXXX.XX Balance when we sell: YYYYYY.YY

Scenerio 3: Make 25k lump sum, recast, pay new min payment of XXXX.XX, interest paid in 9 years: XXXXX.XX Balance when we sell: YYYYYY.YY

NextMil
Posts: 540
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Re: Recast mortgage?

Post by NextMil » Thu Jan 10, 2019 6:49 am

Admiral wrote:
Wed Jan 09, 2019 4:05 pm
SRenaeP wrote:
Wed Jan 09, 2019 3:54 pm
barnaclebob wrote:
Wed Jan 09, 2019 3:34 pm
Mako52 wrote:
Wed Jan 09, 2019 3:26 pm
I did not phrase this well and flubbed a cell in my analysis. But the bottom line is that if your recast is small, you could potentially end up with a higher mortgage balance than you otherwise would if you choose to sell the home before the mortgage pays off entirely. In our case that recast amount is roughly 15% of our mortgage balance. Anything above that and you're ahead. There is a crossover point depending on the particular rate.

Wells Fargo told me that recasting would make the maturity date the same as our original 30 year, even though we are currently four years ahead of schedule due to extra principal payments.
Yes, You'll definitely have a higher balance if you recast and then pay less than you were. Your post is still confusing, there is no "crossover point' with recasting, its just stretching out a loan.
Recasting is not stretching out a loan. It is merely re-amortizing the existing balance. Recast or not, the term and interest rate stay the same.
Actually, it is, in the sense that you're going back to the original term (starting over) regardless of where you are on the payment schedule. The banks like it because they get more interest in the early years of the loan. You're almost always better of with a refinance to a shorter term unless there is some huge delta in rates.
Yes, but he already said that he would apply the delta in payment to principal, and in that case it does not change the amount of interest you are paying, nor the current term or trajectory since you are powering through the new amortization schedule.
Last edited by NextMil on Thu Jan 10, 2019 7:26 am, edited 1 time in total.

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Watty
Posts: 16880
Joined: Wed Oct 10, 2007 3:55 pm

Re: Recast mortgage?

Post by Watty » Thu Jan 10, 2019 7:20 am

Admiral wrote:
Wed Jan 09, 2019 4:05 pm
SRenaeP wrote:
Wed Jan 09, 2019 3:54 pm
barnaclebob wrote:
Wed Jan 09, 2019 3:34 pm
Mako52 wrote:
Wed Jan 09, 2019 3:26 pm
I did not phrase this well and flubbed a cell in my analysis. But the bottom line is that if your recast is small, you could potentially end up with a higher mortgage balance than you otherwise would if you choose to sell the home before the mortgage pays off entirely. In our case that recast amount is roughly 15% of our mortgage balance. Anything above that and you're ahead. There is a crossover point depending on the particular rate.

Wells Fargo told me that recasting would make the maturity date the same as our original 30 year, even though we are currently four years ahead of schedule due to extra principal payments.
Yes, You'll definitely have a higher balance if you recast and then pay less than you were. Your post is still confusing, there is no "crossover point' with recasting, its just stretching out a loan.
Recasting is not stretching out a loan. It is merely re-amortizing the existing balance. Recast or not, the term and interest rate stay the same.
Actually, it is, in the sense that you're going back to the original term (starting over) regardless of where you are on the payment schedule. The banks like it because they get more interest in the early years of the loan. You're almost always better of with a refinance to a shorter term unless there is some huge delta in rates.
In a recast the length of the loan and the interest rate stay the same. The only thing that changes is the required monthly payment. You may be thinking of a refinance.

If you have your mortage recast and then keep making the same payment then that is no different than if you had had just made a large prepayment.

Leemiller
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Joined: Sat Jun 01, 2013 12:42 pm

Re: Recast mortgage?

Post by Leemiller » Thu Jan 10, 2019 8:03 am

There is no way at your income level that I’d go through the trouble of dealing with a mortgage company to be able to pay $200 less a month. Just not worth it IMO.

Trism
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Re: Recast mortgage?

Post by Trism » Thu Jan 10, 2019 9:09 am

We just did a recast. This lowered our "required" payment by 1/3 but we haven't changed the amount we are actually paying.

We saw no downside.

The lower payment will be reflected on your credit report, so your DTI will be lower if you want to get other types of credit later, which may get you a more favorable rate.

Lower DTI could also help you access more credit for an investment property or other useful purposes... if that's your thing. :)

Mako52
Posts: 96
Joined: Mon Jul 30, 2018 11:07 am

Re: Recast mortgage?

Post by Mako52 » Mon Jan 14, 2019 10:56 am

barnaclebob wrote:
Wed Jan 09, 2019 4:34 pm
Mako52 wrote:
Wed Jan 09, 2019 4:00 pm
barnaclebob wrote:
Wed Jan 09, 2019 3:34 pm
Mako52 wrote:
Wed Jan 09, 2019 3:26 pm
I did not phrase this well and flubbed a cell in my analysis. But the bottom line is that if your recast is small, you could potentially end up with a higher mortgage balance than you otherwise would if you choose to sell the home before the mortgage pays off entirely. In our case that recast amount is roughly 15% of our mortgage balance. Anything above that and you're ahead. There is a crossover point depending on the particular rate.

Wells Fargo told me that recasting would make the maturity date the same as our original 30 year, even though we are currently four years ahead of schedule due to extra principal payments.
Yes, You'll definitely have a higher balance if you recast and then pay less than you were. Your post is still confusing, there is no "crossover point' with recasting, its just stretching out a loan.
If I recast our loan with a $25,000 payment now, there will be a higher mortgage balance when we sell our house in 9 years (NOT in 22 years, when it would otherwise be paid off) that would offset the savings in interest and monthly P&I payments between now and then.
You are going to have to post what your baseline is if you want good advice. Example:

Scenario 1: Stay with original mortgage, pay 2500 a month min payment and an extra 500 a month in extra principle, 3000 total. Interest paid in 9 years, 25k, Balance when we sell: YYYYYY.YY

Scenario 2: Stay with original mortgage, make a lump sum payment of 25k, pay 2500 a month min payment after that. Interest paid in 9 years $XXXXX.XX Balance when we sell: YYYYYY.YY

Scenerio 3: Make 25k lump sum, recast, pay new min payment of XXXX.XX, interest paid in 9 years: XXXXX.XX Balance when we sell: YYYYYY.YY
Our goal is to improve cash flow for the next couple of years while I shift into a new industry and wait for income to get back up, while keeping in mind that we plan to move to LCOL and retire in 9-10 years, well before our mortgage is paid off. So recasting adversely impacts future home equity if you've been making extra principal payments prior to recast and plan to sell prior to expected loan payoff date. In our case, we've already shortened our loan by nearly 4 years thanks to extra principal payments in years 1-6 of the current 30 year (4.125%)

Our current payment is ~55% interest / 45% principal. A recast changes that to 61% interest / 39% principal. (In fairness, it was 70% Principal / 30% Interest when the loan started 7 years ago).

If we recast now with a $20,000 payment, if we move in 5 years, we will have saved $23,379 on monthly payments between now and then, but our mortgage balance will be $6,777 higher at anticipated selling date.

If we recast now with a $50,000 payment, if we move in 5 years, we will have saved $34,162 on monthly payments between now and then, and our mortgage balance will be $18,555 lower at anticipated selling date.

If we recast now with a $20,000 payment, when we move in 9 years, we will have saved $45,808 on monthly payments, but our mortgage balance will be $27,436 higher.

If we recast now with a $50,000 payment, when we move in 9 years, we will have saved $64,736 on monthly payments, but our mortgage balance will be $6,345 higher.

Option A: Lump Sum $20,000 (or $50k, or somewhere in between) into the stock market and hope that we don't have another "lost decade" like 2000-2010.

Option B: Recast and use the monthly savings to invest every month with first priority on the 401k.

Option C: Other suggestions?

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