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Whether you’ve just bought a home and wish you could have gotten a lower payment or have had a mortgage payment for years, there are ways to reduce it. One of these options is recasting the mortgage. Unfamiliar with the term? Read on to learn what recasting a mortgage means, its pros and cons, and how it compares to alternatives, like refinancing.

What is recasting a mortgage?

A mortgage recast occurs when you put down a lump-sum payment toward the mortgage’s principal balance and your lender then re-amortizes the loan to lower the monthly payment. (Amortization determines how much principal and interest are applied to each monthly payment throughout the life of the loan.) Simply put, a mortgage recast reduces the principal and interest payment each month. It’s important to note that recasting does not change the interest rate or loan terms, however.

The amount you can save through a recast will depend on a number of factors. For an initial estimate, you can use a recast calculator online. If a recast looks like something you’d like to pursue and you’re a Mr. Cooper customer, you can contact us to begin the process. (See below.)

Since recasting involves paying out a large amount at one time, some people opt to recast their mortgage when they have a financial windfall. This could be anything from an inheritance, to profit from an investment, to a big bonus or life insurance payout. 

Some homeowners also recast a mortgage if they get caught between two homes. As an example, let’s say you just bought a new house but your last house is still on the market. Once the last home sells, you can apply its proceeds to recast your new home’s mortgage. This could be a big money saver if you weren’t able to put a large down payment on your new home while money was tied up in your last house.

Who qualifies for a mortgage recast?

Standards for eligibility vary by lender, but at Mr. Cooper, here are some of the top requirements: 

• Minimum amount: You’ll need a minimum principal balance payment of $10,000. From there, you can pay up to a maximum of 85% of the loan’s current unpaid principal balance (UPB).
• Recasting fee: There is usually a non-refundable fee of up to $250 to recast the mortgage but this can vary from state to state. 
• Loan type: 
  • Conventional loans (loans that aren’t backed by the federal government) with a minimum 15 to 30-year term are eligible for loan recasts. 
  • Loans that are insured or guaranteed by the federal government aren’t. Federal loans include loans backed by Ginnie Mae, and FHA, VA, and USDA. 
  • Additionally, interest-only loans, certain ARMs (i.e., option ARMs), HELOCs, balloon, and commercial loans are not eligible for recasting. 
• Good standing: The loan must be current to be eligible for recasting.

There’s no limit to the number of recast requests you can submit but you must meet the requirements for each submission. You can also recast a Mr. Cooper mortgage as soon as 30 days after the mortgage begins. Additionally, a Mr. Cooper recast doesn’t involve income verification, a credit check, or a home equity requirement. 

Don’t qualify? Don’t worry. See our article “How To Pay Off a Mortgage Early” for more ways to reduce your mortgage costs.

Mortgage recast vs. refinance: Which is better?

The decision to recast vs. refinance the mortgage to lower the payment will depend on your personal preference. 

A mortgage recast is usually a better option than a refinance if you want to keep the current interest rate and have a large sum of money to put down on the loan. Additionally:

• Recasting is typically less expensive than refinancing because it doesn’t require paying closing costs or appraisal fees. (You can read more about refinancing costs in our article here.) 
• Recasting also won’t require a credit check or income verification like most refinances do. 

A refinance is typically better if you want to get a lower interest rate or take cash out of your equity (cash-out refinance).

If you’re unsure which is best, consult one of our mortgage experts for more information. (See the end of the article for contact options.) You can also use our refinance calculator to start comparing the numbers.

Mortgage recast vs. principal payment: Which is better?

If you want to pay the least amount possible each month by your loan’s maturity date and reduce the monthly payment, recasting is typically the better option. But, if your goal is to pay the mortgage off early, making a big principal payment may be best. 

Note: You’ll pay less interest if you make a lump-sum payment and pay off the mortgage early versus a recast.

To compare your options, talk to one of our Mortgage Professionals for more information. You can also use our payoff calculator to estimate how a principal payment could affect the loan.

What are some mortgage recast pros and cons?

You should carefully consider applying for a recast as it can take up to 90 days and the process starts at the receipt of principal funds and fees. That said, here are some pros and cons to consider.

Pros

• Lower mortgage payment: Recasting the mortgage will lower the monthly mortgage payments. 
• Fewer fees: When it comes to reducing the mortgage payments, recasting can be less expensive than other options, like refinancing. There are no closing costs or appraisal fees, though you may have to pay a recasting fee. 
• No credit check: Recasting doesn’t require a credit check or risk of being denied due to your score.
• No income verification: Mr. Cooper does not require income verification for recasting. 
• No rate changes: If you’re happy with your current interest rate, you’re in luck! Recasting a mortgage doesn’t change the interest rate.

Cons

• Must make a large principal payment: Mr. Cooper requires a minimum principal payment of $10,000 to recast.
• Loan terms don’t change: Recasting a mortgage will not shorten the terms of the loan. In other words, you’ll be paying off the loan in the same original timeframe.
• Investing may make more financial sense: Investing the money you’d use on a recast may give you a better return on your investment (ROI). Talk to a financial professional to learn more.
• Once your recast is approved, you can’t get the lump-sum payment back: The recast payment cannot be refunded.

Some other things to keep in mind

• If you have mortgage insurance, recasting may enable you to remove it. The account will be evaluated for this, and if it qualifies, the mortgage insurance may be removed.
• Recasting does not affect your ability to take out a home equity loan.

How to recast your Mr. Cooper mortgage

To get the recast process started, see our Help Center article on mortgage recasts that will walk you through the steps. Once you’re ready to apply, our application will also list important information on what to expect.

If you have additional questions, you can contact a Mr. Cooper agent anytime:

• Contact a Live Chat agent in our Help Center Monday – Thursday from 7 a.m. to 8 p.m. (CT) or Friday from 7 a.m. to 7 p.m. (CT). (For the best experience, sign in to your online account first.)
• Send us a message in our secure Message Center.

Whenever you need it, we’ll be here to help!