A recast loan is a great way to reduce your monthly mortgage payment and pay off your home loan faster.
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What is a recast loan?
A recast loan is a mortgage that has been paid down significantly and then restarted with a new amortization schedule. In other words, the loan “recasts” or “resets.” Technically, any mortgage can be recast, but it’s most common with big loans, such as jumbo loans.
How does a recast loan work?
A recast loan occurs when a borrower pays a lump sum of money to their mortgage lender in order to lower their monthly payments. The borrower may do this if they come into a large sum of money, such as an inheritance, bonus, or tax refund.
In order to qualify for a recast loan, the borrower must have made all of their required monthly payments on time and must have at least 20% equity in their home.
Once the borrower has paid the lump sum, the lender will recalculate the borrower’s monthly payments based on the new balance of the loan. The new monthly payments will be lower than the original monthly payments, but the total amount paid over the life of the loan will remain the same.
A recast loan can be a good option for borrowers who want to lower their monthly payments without extending the term of their loan.
How do I qualify for a recast loan?
To qualify for a recast, you’ll need to make a lump sum payment of at least $5,000 to your mortgage company. The company will then recalculate your loan terms and lower your monthly payments. Some companies will require that you have made all of your payments on time for at least a year before you can qualify for a recast.
What are the benefits of a recast loan?
A recast loan is a type of mortgage where the borrower pays a lump sum of money to the lender in order to “recast” the loan. This lowers the monthly payment amount, as well as the total interest paid over the life of the loan.
Recasting a loan can be a good option for borrowers who come into a large sum of money and want to use it to pay down their mortgage. It can also be a good option for borrowers who are looking to lower their monthly payments without refinancing their loan.
There are several benefits of recasting a loan, including:
– Lowering your monthly payment amount
– Reducing the total interest paid over the life of the loan
– Avoiding the costs associated with refinancing
What are the drawbacks of a recast loan?
There are a few potential drawbacks to getting a recast loan. First, you may have to pay a fee to recast your loan. This fee is typically a percentage of the principal balance being recast, so it can be significant. Second, you may not be able to lower your interest rate by recasting your loan. And finally, recasting may not be an option if you have negative equity in your home.