![]() Excess Cash: like Tommy in our example above, someone may have an abundance of liquid cash and would prefer a lower monthly obligation.They can use those proceeds to reduce the mortgage payment obligation via the recast. A primo scenario is if they receive a lump sum retirement payout through a golden parachute. Retiring: Perhaps someone is retiring and is preparing to live off a fixed income.Once the previous home sells the net proceeds from the sale – which can be determined from our seller’s net sheet calculator – can be applied to the new mortgage for a recast. ![]() Selling a Home: when someone buys a home before selling their existing home.Here are a few of the most common examples: There are a number of examples when it may be prudent to recast a mortgage. You may find other uses for such a lump sum. Not everyone feels comfortable investing so much in their home.Depending on your finances, this could make recasting less appealing. A recast might not change your monthly payments.You’re still committed to paying the loan for the same number of years. The recast may not shorten the loan’s duration.There are some possible drawbacks to mortgage recasts. If you have a low interest rate, you can keep it.The mortgage recast may reduce your monthly mortgage payments or the loan term.There’s no need to qualify for a new home loan.Recasting a home loan has some advantages. The result is about $55,700 less interest paid than the “normal” 30 year loan without the $50k applied. The amount of total interest paid will be around $407,600. The contrast of this recast from the “normal” principal reduction is that the loan will still last the full 30 years. That’s $304 lower per month than the original $2,398. Tommy now has a payment of $2,094 per month. (Remember Tommy is doing this exactly one year after closing on a 30 year note hence the 29 years.) Secondly, they amortize the loan with the existing 6% rate over the remaining 29 years of the loan. Tommy does what they say.įirst the mortgage servicer applies the $50k to principal for a new $345,000 balance. They explain that it’s a $350 fee and provide details on how to send the payment. ![]() Tommy can call the mortgage servicer and tell them he wants to do a recast and not a normal principal reduction. Tommy’s second option is a mortgage recast. Not a bad way to spend $50,000 Tommy! Recast a Mortgage That’s a reduction of $172,500 in paid interest. This principal reduction will lessen the total mortgage interest paid on the loan from $463,350 (ish) to $290,850 (ish). This will reduce his loan term to 22.3 instead of the original 30 years since he’ll continue to pay his regular monthly payment of $2,398. Tommy can write a check for $50k and apply it towards his principal and lower his loan balance from $395,000 to $345,000. “Normal” Principal ReductionĪ normal principal reduction is simple. Tommy can either do a “normal” principal reduction or he can recast a mortgage. At this point, Tommy owes approximately $395,000 on his home loan after one year of making on-time mortgage payments. Tommy wants to put this newfound fortune towards his mortgage. Now let’s assume exactly one year later Tommy wins $50,000 with a lotto scratch-off ticket. We’ll assume he has a 6% interest rate with a principal and interest payment of $2,398 per month. Let’s suppose it’s March and our best pal, Tommy, closes on a 30 year fixed-rate mortgage for $400,000. The best way to illustrate how recasts work is through an example. If your mortgage payments aren’t up to date, you may be unable to recast your mortgage.Īny type of mortgage refinance can be confusing. For example, most mortgage recasts require: Your lender may have criteria you need to meet before you can recast a mortgage. ![]() What if My Lender Won’t Agree to a Mortgage Recast? This will allow you to pay a larger lump sum – and reduce your mortgage sooner. To get the most benefit from a mortgage recast, consider waiting until you have a cash windfall. Home loan recasts are typically only allowed once during a mortgage’s lifetime so plan accordingly. Can we get a Hallelujah! How Many Times Can I Recast a Mortgage? This is a one-time fee that is paid upon completion.Ī mortgage recast does not require any underwriting or mortgage documentation like the mortgage loan process. The costs to recast a mortgage should be less than $500. Check with your mortgage servicer for details. A few others only require a $5,000 principal reduction to recast a mortgage. We know of a (very) few investors that require a 10% payment towards the principal. Most mortgage companies will require a minimum payment of $10,000.
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