What Is a Mortgage Recast and How Is It Different From Refinancing?

Understanding Mortgage Recast vs. Refinance Before You Decide

When homeowners want to reduce their monthly mortgage payment, refinancing is usually the first option that comes to mind.

However, there is another strategy that receives far less attention but can be highly effective in specific situations: the mortgage recast. Understanding how a mortgage recast works, and how it differs from refinancing, can help you choose the option that best aligns with your financial goals.

Below, we break down both strategies clearly and objectively, so you can make a confident, informed decision.

What Is a Mortgage Recast?

A mortgage recast, also known as a loan re-amortization, allows you to lower your monthly payment by making a large lump-sum payment toward your principal balance.

After this payment, the lender recalculates your remaining loan balance over the original loan term.

Importantly, the interest rate and loan maturity date stay the same. Only the monthly payment changes.

Example:
If you receive a work bonus, inheritance, or proceeds from selling another property, you can apply that money directly to your mortgage principal.

Once the loan is recast, your remaining balance is spread over the remaining term, resulting in a lower monthly payment.

Most lenders charge a modest fee for a recast, typically a few hundred dollars, and the process is usually faster and simpler than refinancing.

What Is Mortgage Refinancing?

Refinancing replaces your existing mortgage with a brand-new loan. The new loan may have a different interest rate, loan term, or both.

Homeowners usually refinance to:

• Secure a lower interest rate;
• Change the loan term (for example, from 30 years to 15 years);
• Switch from an adjustable-rate mortgage to a fixed-rate mortgage;
• Access home equity through cash-out refinancing.

Because refinancing involves issuing a new loan, it typically comes with closing costs that range from 2% to 5% of the loan amount.

It also requires a full underwriting process, including a credit check, income verification, and often a home appraisal.

Key Differences Between a Mortgage Recast and Refinancing

Although both strategies can reduce your monthly payment, they work very differently.

1. Interest Rate

• Mortgage recast: Your interest rate stays exactly the same;
• Refinancing: Your interest rate may go up or down, depending on market conditions and your credit profile.

2. Loan Term

• Mortgage recast: The loan term does not change;
• Refinancing: You can shorten or extend the loan term.

3. Costs and Fees

• Mortgage recast: Usually involves a small administrative fee;
• Refinancing: Includes closing costs, which can be significant.

4. Speed and Complexity

• Mortgage recast: Faster and simpler, with minimal paperwork;
• Refinancing: More complex and time-consuming.

5. Eligibility

• Mortgage recast: Typically available only on conventional loans and not allowed on government-backed loans like FHA or VA;
• Refinancing: Available across most loan types, subject to approval.

Choosing the Right Strategy

The decision between a mortgage recast and refinancing depends on your broader financial picture.

If your primary goal is to lower monthly payments while keeping your existing loan structure intact, a recast can be an efficient solution.

If your goal is to optimize your interest rate, loan term, or access equity, refinancing offers greater flexibility.

Before choosing either option, it is wise to review your cash reserves, long-term housing plans, and overall debt strategy.

Speaking with your lender or a qualified financial professional can also help clarify which path aligns best with your objectives.

When Refinancing Is the Better Option

Refinancing may be the better option when current interest rates are significantly lower than the rate on your existing mortgage, as this can lead to substantial savings over time.

It is also a suitable strategy if your goal is to shorten the loan term and pay off your home faster, even if that means higher monthly payments.

Additionally, refinancing can be useful if you need to access your home equity to cover major expenses, such as renovations, education costs, or debt consolidation.

Final Thoughts

A mortgage recast is not a replacement for refinancing, nor is refinancing always the superior option. Each serves a different purpose.

By understanding how these strategies work and when to use them, you gain more control over your housing costs and long-term financial stability.

Making the right choice can free up cash flow, reduce financial stress, and help you move forward with greater confidence.

Written by

Juliana Raquel