If you come into a lump sum, such as a bonus, inheritance or home sale proceeds, a mortgage recast can lower your payment without a new loan. Here is how it compares with refinancing.
The example
$300,000 balance, 6.5% rate, 25 years left. Payment: about $2,026 a month (principal and interest).
| Option | What happens | New payment | Typical cost |
|---|---|---|---|
| Recast | Pay $50,000, lender re-amortizes $250,000 over the same 25 years at 6.5% | about $1,688 | fee often $150-$500 |
| Refinance to 5.75%, 30 years | New loan for $300,000 | about $1,751 | closing costs, often 2-5% |
| Refinance to 5.75%, 25 years | New loan for $300,000 | about $1,887 | closing costs, often 2-5% |
Recast: good to know
- The rate stays the same; only the payment drops.
- Not every loan can be recast. Many conventional loans allow it; FHA, VA and USDA loans usually don't.
- Lenders often require a minimum lump sum, such as $5,000-$10,000.
- Total interest over the remaining term falls from about $307,700 to about $256,400 in this example.
Refinance: good to know
- It makes sense when the new rate is low enough that savings cover closing costs within a few years (the break-even point).
- Extending to a new 30-year term lowers the payment but can add interest over the life of the loan.
A third option
Keep the $50,000 as a lump-sum prepayment without recasting. The payment stays at $2,026, but the loan is paid off years earlier. Recasting trades that speed for a lower monthly bill.
Free tools
- Mortgage recast calculator: https://smartbudgetsheets.surge.sh/calculators/mortgage-recast-calculator/?utm_source=mataroa
- Mortgage refinance calculator: https://smartbudgetsheets.surge.sh/calculators/mortgage-refinance-calculator/?utm_source=mataroa
- Mortgage payoff calculator: https://smartbudgetsheets.surge.sh/calculators/mortgage-payoff-calculator/?utm_source=mataroa
- Debt Payoff Planner, up to 8 debts (Payhip): https://payhip.com/b/PtBLU?utm_source=mataroa
- 42 free budget templates, pay what you want ($0 is fine): https://smartbudgetsheet.gumroad.com/l/ngpkrb?utm_source=mataroa
General information, not financial advice. Figures are rounded examples.