Second, it doesn’t change your interest rate so if rates have dropped it may not make sense. First of all, you are putting a lot of cash into the equity of your home, which is probably a good investment but it isn’t guaranteed, either. What are the disadvantages to mortgage recasting?Īlthough there are plenty of scenarios where recasting makes sense, there are some clear disadvantages as well. It can even make sense if that isn’t the case, and you just want to secure a lower payment. If you are going to make more money paying down your principal than you would putting the money someplace else, then it’s probably a good idea. No matter what, the math for recasting is pretty simple. Recasting is particularly attractive in this scenario because the returns are guaranteed: you MIGHT make 7% in the stock market, but with recasting you immediately lock in a return equal to your mortgage interest rate… and that value can’t go up or down. Naturally, it’s preferable to have lower monthly bills as a retiree on a fixed income, and housing is usually a big line item. You are about to retire and you want to lock in a lower payment - Recasting can make a LOT of sense for people who are about to retire. Of course, that doesn’t mean recasting is the best way to use that money (it could be that the rental just wasn’t a great investment…), but it is one way to solve that problem. You need to decrease your payment to cash flow a rental - If you have a rental property with a mortgage that doesn’t currently cash flow positive, recasting a mortgage can help turn the tides. You have a lot of money sitting on the sidelines - If you have a big chunk of change that you aren’t investing and that’s yielding less than your mortgage interest rate, recasting is a really good way to put the money to use and increase your month to month cash flow (from your lower monthly payment) Rates have risen - If your original mortgage is at 3% but rates are 6%, recasting is a smarter move than refinancing because you get to keep your old rate but secure a lower payment Here are some situations when recasting makes the most sense.
I would say that you want to pay down at least 25% of your mortgage if you are going to recast, although that isn’t a “rule” so much as a guidepost to make sure you are using your time wisely. Recasting is a process, and it’s really not worth going through unless the payment after the paydown will change in a significant way.
There are a number of times when recasting a mortgage makes a lot of sense, but no matter what the homeowner will need to have a sizable chunk of change set aside to pay down the principal.
For now, type in your mortgage details below to see what a recast could look like with your mortgage. But, there are some very good reasons why someone might want to recast a mortgage which I will get to down below. It isn’t quite as clear cut as refinancing, because the choice you need to make is if the additional principal that you are paying toward the mortgage could be invested more productively elsewhere. Knowing when to recast a mortgage is a personal decision.
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