Mortgage Recast: What It Is and How It Works

Key takeaways
* A mortgage recast (or reamortization) recalculates your remaining monthly payments after you make a large lump-sum principal payment.
* Recasting lowers monthly payments by spreading the new, lower principal over the remaining term; it does not change the interest rate.
* Recasting is typically simpler and cheaper than refinancing and usually does not require a credit check, but not all loans are eligible and fees may apply.

What is a mortgage recast?
A mortgage recast lets you reduce your monthly mortgage payment by making a sizable one-time principal payment. The lender applies that payment to your loan balance, then creates a new amortization schedule based on the remaining term and the original interest rate. Monthly payments fall because less principal remains to be amortized.

How a recast works
* You make a lump-sum payment toward principal.
* The lender recalculates payments using the same interest rate and remaining loan term.
* Your monthly payment decreases; the loan payoff date normally stays the same unless you choose otherwise.

Why recast instead of refinance
* Recast: keeps your current loan and interest rate, generally requires only a lump-sum payment and a small administrative fee, and usually involves no credit check.
* Refinance: replaces your loan with a new mortgage (new rate and terms), may lower your interest rate or shorten the term, but involves closing costs, a credit check, and underwriting.

Recast advantages
* Lower monthly payment without closing costs or full refinance process.
* Simple administrative process in most cases.
* Can reduce total interest paid over the life of the loan if a large enough principal payment is made.

Recast limitations
* Does not change your interest rate.
* Does not necessarily shorten the loan term (payments are spread over the remaining term).
* Not all mortgages are eligible.
* Lenders may charge a recast fee.
* May be less beneficial than refinancing if current market rates are significantly lower than your loan rate.

Which loans can be recast
* Conventional loans are commonly eligible for recasting.
* Government-backed loans (FHA, VA, USDA) are generally not eligible for recast under standard program rules.
* Some mortgages explicitly include recast provisions, such as negative-amortization loans and option ARMs. Those loans often require recasting at scheduled dates or if a principal cap is reached.

Negative amortization loans and Option ARMs
Negative-amortization loans allow payments that can be less than the interest due, creating deferred interest that is added to principal. These loans commonly include mandatory recast provisions to restore an amortizing schedule by a specified time or when the balance exceeds a limit. Option ARMs (payment-option adjustable-rate mortgages) offer payment choices and can build deferred interest, which similarly may trigger recast events.

Example
You have a $500,000, 30-year fixed-rate mortgage at 4% with a principal-and-interest payment of roughly $2,400. After 10 years you pay a $50,000 lump sum:
* Without recasting: your monthly payment stays about $2,400 but the loan will be paid off several years earlier.
* With a recast over the remaining 20 years: your new monthly payment would drop to about $2,080 (same interest rate, shorter amortized principal).

How to request a recast
1. Contact your lender or servicer and ask whether they offer recasting.
2. Ask about minimum lump-sum requirements, fees, processing time, and required documentation.
3. Confirm the new monthly payment, amortization schedule, and whether any escrow or other account changes will occur.
4. Complete the lender’s process and submit the principal payment.

Common questions
* Will a recast lower my interest rate? No — the interest rate stays the same.
* Will a recast shorten my loan term? Not usually; it spreads the reduced principal over the remaining term unless you choose to keep payments the same and shorten the term.
* Does recasting require a credit check? Typically no — it’s usually an administrative change, not a new loan.
* Are FHA/VA/USDA loans eligible? Generally they are not eligible for recasting.

Bottom line
A mortgage recast is a straightforward way to lower monthly payments by applying a large principal payment and having the lender reamortize the loan. It’s often cheaper and simpler than refinancing, but it won’t change your interest rate and isn’t available for every loan type. Compare the benefits of recasting with refinancing—especially if current interest rates are lower than your existing rate—before deciding.