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Is a mortgage recast cheaper than refinancing after a lump-sum payment?
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I’m comparing three options for a fixed-rate mortgage and would appreciate help checking the numbers.
The loan currently has:
- Balance: $318,000
- Interest rate: 6.25% fixed
- Remaining term: 24 years
- Proposed principal payment: $75,000
- Current principal-and-interest payment: about $2,150 per month
The servicer says a formal recast is available after the lump-sum payment, with a $300 fee. I’m still confirming whether there’s a minimum payment, seasoning period, or other eligibility requirement. My understanding is that the rate and remaining maturity would stay unchanged, but the required payment would be recalculated using the lower balance.
After the $75,000 payment, the balance would be about $243,000. At 6.25% with 24 years remaining, I estimate a recast payment around $1,630 per month, plus the one-time fee.
The main question is whether the recast is worthwhile compared with refinancing the reduced balance, or simply making the $75,000 payment and continuing the original payment schedule. A refinance quote I received has a lower rate, but the closing costs and shorter remaining term make the comparison less straightforward.
As I see it:
- Recasting lowers the required payment while keeping the current rate and payoff date.
- Paying the $75,000 without recasting keeps the payment near $2,150, which should pay off the smaller balance much sooner.
- Refinancing could reduce the rate, but only if the interest savings outweigh closing costs and any extension or shortening of the loan term.
What’s the best way to compare these fairly? Should I focus on total interest from this point forward, monthly-payment flexibility, and the refinance break-even period? Also, are there recast drawbacks I may be overlooking besides the fee and the fact that the interest rate stays at 6.25%?
1 reply
Compare the refinance by APR, total closing costs, and payoff date, not the advertised rate alone. A lower rate may not win if the shorter term raises the required payment or the costs take too long to recover.
The recast’s roughly $1,630 payment is mainly buying flexibility for $300. If the borrower can comfortably keep paying about $2,150 after the $75,000 principal payment, that acts like an aggressive payoff schedule on the smaller balance, while still allowing the lower required payment if cash flow changes. Mortgage math loves hiding the ball in the payment-versus-term tradeoff.
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