Mortgage Recast Calculator
Calculate your new monthly obligation after a principal reduction.
Understanding Mortgage Recasting
A mortgage recast, also known as a principal re-amortization, is a financial strategy where a borrower makes a significant one-time payment toward the principal balance of their existing debt. Unlike a traditional "extra payment" that simply shortens the term of the loan, a recast triggers the lender to recalculate the monthly payments based on the new, lower balance and the original interest rate and remaining term.
The Mathematics of the Recast
The logic of a recast is straightforward yet powerful for cash flow management. The formula used follows the standard amortization schedule logic but resets the starting principal (P). If you have a balance of $300,000 at 5% with 20 years left, your payment is roughly $1,980. By injecting $50,000 and recasting, the math becomes:
- Step 1: Subtract the Lump Sum from the Current Balance.
- Step 2: Apply the original Annual Percentage Rate to the new balance.
- Step 3: Calculate the monthly installment required to pay off that new balance over the exact number of months remaining in the original contract.
Recasting vs. Refinancing
Many homeowners confuse recasting with refinancing. Here are the key distinctions:
- Rate Retention: Recasting keeps your current interest rate. This is beneficial if your current rate is lower than prevailing market rates.
- Credit Checks: Recasting usually does not require a credit check or a new appraisal, making it a "low-friction" modification.
- Costs: While refinancing carries heavy closing costs (2-5% of loan value), a recast usually only involves a small administrative fee (often $200–$500).
- Goal: Refinancing aims for a lower rate or different term; recasting aims solely for lower monthly obligations.
Example Calculation
Imagine you have $200,000 left on your home. Your yearly percentage is 4%, and you have 180 months (15 years) left. Your current payment is approximately $1,479. If you win a $40,000 bonus and apply it as a recast:
Your new balance is $160,000. The lender recalculates the payment over 180 months at 4%. Your new payment drops to $1,183, saving you $296 per month in immediate liquidity.