What a recast actually is
A mortgage recast is the servicer re-amortizing a loan that already exists. You send a lump sum to principal, the servicer charges a flat fee, and the monthly payment is recomputed from the new balance at the same rate over the same number of payments that were left. The note does not change. The rate does not change. The end date does not change. There is no application, no credit pull, no appraisal, no title work and no closing, because nothing is being originated: it is a piece of bookkeeping on a loan you already have.
That makes it the cheapest way to lower a mortgage payment, and the narrowest. It can only ever do one thing. If a lower rate is what you want, or a longer term, or cash out of the equity, a recast is the wrong tool and no amount of lump sum will turn it into the right one. What it buys is room in the month, bought with money you already had.
The arithmetic is the ordinary amortization formula run twice, once on the old balance and once on the new one, both over the payments that remain. The payment calculator runs the same formula on a purchase, with taxes, insurance and dues folded in.
Who offers one
Conventional loans commonly recast, subject to the servicer's own rules: a minimum lump sum (often stated as $5,000 or ten percent of the balance, whichever the servicer uses), a flat fee typically in the low hundreds of dollars, a requirement that the loan be current, and sometimes a seasoning period of a few payments after origination. FHA, VA and USDA loans generally do not recast. Neither do some loans that sit in pools whose terms forbid it, which is why two borrowers with the same kind of loan can get different answers from different servicers.
The servicer decides, not the originator and not the investor guidelines as you read them. Ask yours in writing what the minimum is, what the fee is, and whether the loan is eligible at all, before sending the money. A lump sum sent without a recast request is simply an extra principal payment: the balance falls, the payment does not, and getting the servicer to re-amortize afterwards is a conversation rather than a right.
Recast, refinance, or just pay it down
Three things you can do with a lump sum and a mortgage, on one set of numbers: $300,000 left at 6.5% with 25 years (300 payments) to run, a payment of $2,026 in principal and interest, and $50,000 to put against it. Round illustrative figures, not a quote.
| What you do | New payment | Payoff | Interest still to pay | What it costs to do |
|---|---|---|---|---|
| Nothing | $2,026 | 25 years (300 payments) | $307,686 | Nothing |
| Recast with $50,000 | $1,688 ($338 less) | Unchanged | $256,405 ($51,281 saved) | A flat servicer fee, commonly near $250 |
| Pay $50,000 down, keep the payment | $2,026, unchanged | 205 payments, about eight years early | $164,039 ($143,647 saved) | Nothing |
| Refinance the balance at 5.5% over 25 years | $1,842 | Reset to 25 years from closing | $252,679 | Closing costs, typically a few percent of the loan |
The row worth staring at is the third one. The same $50,000, paid to principal with the payment left exactly where it is, saves roughly $143,647 in interest against about $51,281 for the recast, because the recast spends most of the saving on a smaller payment stretched over the full remaining term. A recast is not the cheap version of paying down a mortgage. It is a different transaction with a different point.
The refinance row is illustrative in both directions. A rate a point below the note can beat a recast on every measure and still lose once closing costs and a reset term are counted, and a rate above the note cannot win at all: refinancing a 6.5% loan into a higher rate raises the payment no matter how much principal goes with it. What moves a refinance from arithmetic to a decision is the rate gap, the costs, and how long you keep the loan.
When each one is the wrong tool
- A recast is wrong when the goal is to be rid of the mortgage sooner, when the fee is large next to the saving, or when the money is needed as an emergency fund: once it is in the house, getting it back means borrowing against the equity.
- Paying it down is wrong when the monthly payment is the actual problem. A prepayment does nothing for cash flow. The payment is the same next month as it was last month, right up to the day the loan ends.
- A refinance is wrong when the note rate is already at or below what is on offer, when the costs take longer to recover than you plan to keep the loan, or when resetting a loan that is eight years in back to thirty years quietly undoes the amortization you have already paid for.
- All three are wrong if the payment went up and nobody has said why. An escrow shortfall raises a payment without the loan changing at all, and no lump sum against principal fixes that. Why a mortgage payment goes up and the escrow analysis are the pages for that version of the question.
This is mechanism, not advice. Which of the three fits depends on facts this page does not have: the rest of the balance sheet, what else the money could do, and how long the loan is being kept. Points paid at origination change the comparison too, and what points are is worth reading before treating a quoted rate as comparable to the one on your note.
Questions people ask
What is a mortgage recast?
A recast is the servicer re-amortizing a loan you already have. You pay a lump sum against principal, the servicer charges a flat fee, and the monthly payment is recalculated from the smaller balance at the same rate over the same number of payments that were left. There is no new loan, no credit pull, no appraisal and no closing.
Does a recast lower your interest rate?
No. The rate on the note does not move, which is the whole difference between a recast and a refinance. The payment falls because the balance it is calculated on is smaller, not because the money got cheaper. If the goal is a lower rate, a recast cannot deliver it.
Does a recast shorten the loan?
No, and that surprises people. The payoff date is fixed and the payment is what moves. If you want the loan to end early, pay the lump sum against principal and leave the payment where it is: the same money then buys years off the term instead of room in the month.
How much does a mortgage recast cost?
A flat servicer fee, commonly in the low hundreds of dollars, plus whatever minimum lump sum the servicer requires (often stated as $5,000 or ten percent of the balance). There are no closing costs, no title work and no origination points, which is why a recast is usually far cheaper than a refinance.
Which loans can be recast?
Conventional loans commonly can, subject to the servicer's own rules and the note. FHA, VA and USDA loans generally do not recast, and neither do most loans that were pooled into a securitized pool with terms that forbid it. The servicer decides, so the only reliable answer is the one you get by asking yours in writing.
Is it better to recast or refinance?
They solve different problems. A recast lowers the payment cheaply but cannot touch the rate or the term. A refinance can lower the rate or reset the term, and costs closing fees and a fresh underwriting file to do it. If the rate on your note is already lower than what is on offer, refinancing to get a lower payment usually costs more than it saves.
Arithmetic on the numbers you type, not advice, and not an offer or a quote from any lender or servicer. Eligibility, the minimum lump sum, the fee and the timing are set by your servicer and the terms of your note, and they govern. Figures in the worked example are round illustrative numbers, not current rates. Nothing typed here is stored or sent anywhere.