How to Use the Mortgage Recast Calculator
A mortgage recast calculator is an essential tool for homeowners who have a significant amount of cash and want to lower their monthly mortgage obligations without the high costs of refinancing. By entering your current loan details, you can see exactly how much your monthly principal and interest payment will drop after making a large lump-sum payment.
To get the most accurate results, you will need to provide the following information:
- Current Loan Balance
- The remaining principal balance on your mortgage as of today. You can find this on your most recent mortgage statement.
- Interest Rate
- The annual interest rate (APR) currently attached to your loan. Note that recasting does not change your interest rate.
- Remaining Term (Months)
- The number of months left until your mortgage is scheduled to be paid off completely.
- Lump Sum Payment
- The amount of money you intend to pay toward the principal balance during the recast process.
- Recast Fee
- Most lenders charge a processing fee for a recast, typically ranging from $150 to $500.
What is a Mortgage Recast?
A mortgage recast, also known as a loan re-amortization, occurs when a borrower pays a large sum toward their principal and the lender recalculates the monthly payments based on the new, lower balance. Unlike a refinance, the interest rate and the original loan term remain exactly the same.
The primary goal of using a mortgage recast calculator is to see the immediate impact on your cash flow. While paying extra principal on a standard mortgage will shorten the loan term, it won't lower your monthly bill. Recasting is the specific administrative step that forces the lender to adjust that monthly bill downward.
How It Works: The Recast Formula
The math behind a mortgage recast is identical to a standard loan amortization formula, but it is applied to the new principal balance. The formula used by the mortgage recast calculator is:
M = P [ i(1 + i)^n ] / [ (1 + i)^n – 1 ]
- M: Your new monthly principal and interest payment.
- P: The new principal balance (Original Balance – Lump Sum).
- i: Your monthly interest rate (Annual Rate / 12).
- n: The number of remaining months on the original loan.
Mortgage Recast Example
Scenario: Imagine you have a loan with a $300,000 balance at a 6% interest rate with 240 months (20 years) remaining. Your current monthly payment is $2,149.29. You receive a $50,000 inheritance and decide to recast.
Step-by-step solution:
- Calculate New Principal: $300,000 – $50,000 = $250,000
- Identify Monthly Rate: 0.06 / 12 = 0.005
- Identify Remaining Months: 240
- Apply Amortization: $250,000 [ 0.005(1.005)^240 ] / [ (1.005)^240 – 1 ]
- Resulting New Payment: $1,791.08
- Monthly Savings: $358.21
Common Questions
Does a mortgage recast lower my interest rate?
No. A recast keeps your existing interest rate. If interest rates have dropped significantly since you took out your loan, a refinance might be a better option than a recast, even though the closing costs are higher.
Is there a minimum payment for a recast?
Most lenders require a minimum lump-sum payment to initiate a recast, often at least $5,000 or $10,000. Additionally, you must generally have a conventional or VA loan; FHA and USDA loans typically do not allow for recasting.
Recast vs. Refinance: Which is better?
Recasting is better if you have a great interest rate and simply want to lower your monthly expenses. Refinancing is better if market interest rates are lower than your current rate or if you need to change the loan term (e.g., switching from a 30-year to a 15-year mortgage).