“Recasting” a mortgage refers to the modification of the promissory note and the reduction in monthly payment when a borrower pays down a large portion of his mortgage.
The interest rate and the term of the mortgage remain the same, but the payment is reduced b/c the principal is reduced.
For example, a borrower might borrow $500,000 at 4% to buy a $700,000 home. That borrower’s mortgage payment will be $2,387/month. If the borrower decides to pay down the loan by $200,000 6 months later, he can ask his loan-servicer to recast his mortgage, based on the new $300,000 principle. If the servicer recasts the loan, the new payment will be $1,432/month.
Only some loan servicers allow for recasting though. Most large banks do, and some of our wholesale lenders like Quicken loans do (as long as they service the loans).
Quicken, for example, allows borrowers to recast as often as they’d like as long as they pay the loan down in increments of $10,000 and pay a $100 fee.
It is difficult for any lender to promise a borrower that they can recast their mortgage later on b/c it will depend on the servicer, and it is often impossible to control which company ends up servicing a loan.
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