A Built-In Feature Most People Never Hear About

Markita Woods says there is a feature built into many home loans that almost nobody talks about. If you want to lower your monthly mortgage payment without giving up your low interest rate, it could be the tool you have been missing. Many homeowners never hear about it, simply because no one thinks to bring it up.

The Costly Refinance Trap

Most homeowners assume that if they have extra cash to put toward their home and want a smaller monthly payment, refinancing is the only option. Markita points out that refinancing can be expensive. It brings fees and closing costs, it resets your loan term, and it forces you to accept whatever interest rates are available in the market today. For someone who already has a low rate, giving it up can undo the very benefit they were trying to protect.

Ask About a Recast

Markita’s advice is to ask about a recast. With a recast, you make a lump sum payment toward your principal balance, and your loan servicer recalculates your monthly payment based on the smaller balance. Because the balance is lower and the remaining term stays the same, the payment drops. Servicer policies differ, including minimum lump sum amounts and processing steps, so it is worth contacting your servicer to confirm how they handle it.

What You Keep With a Recast

A recast lets you keep your lower rate while lowering your payment. Your interest rate stays untouched, your payoff timeline does not reset, and your monthly payment drops for what is typically a very small processing fee. Compared with a refinance, that can be a simpler and less costly way to put your extra cash to work, especially after a windfall such as a bonus, an inheritance, or proceeds from selling another property.

An Important Limitation

Markita notes that recasting is generally available only on conventional loans. It is not available on VA and FHA loans. If you have one of those loan types, other strategies may fit better, so it helps to talk through your options.

Strategic Ways to Build Wealth With the Home You Own

If you want to explore strategic ways to build wealth with the home you already own, reach out to Markita Woods and consider whether a recast makes sense for you. It could be another way to put more money back in your pocket.

Sources

ConsumerFinancialProtectionBureau.gov
FreddieMac.com
Fanniemae.com
Bankrate.com
NerdWallet.com