Refinance vs. Recast

What’s the Difference Between Refinancing and Recasting?

The ultimate goal of refinancing or recasting your home mortgage loan is to pay less money over time. So it’s important to know your options and assess whether either makes sense for your financial goals.

Recasting means that you’re changing your existing loan and its payment plan, not taking out a new mortgage. If you have been paying on your mortgage for a long period of time or have made large payments that have paid down your loan balance, this could be a great option. Essentially your current loan balance will be re-amortized over the remaining term of your original mortgage loan. Hypothetically, you originally took out a $100,000 mortgage for 30 years and have been paying on that mortgage for 15 years, and now your balance is $50,000. That $50,000 would then be recalculated based on the remaining 15 years, giving you a new monthly payment amount that is likely lower. Because you are not changing the terms of your loan when you recast, neither your interest rate nor your final maturity date (the date in which your loan is paid in full) will be affected.

If your existing mortgage is with Gateway, simply contact our Customer Care Department and they will point you in the right direction. Otherwise, contact the company that currently services your mortgage (where you send your monthly payments) and inquire about their recasting options as these can vary from company to company.

Refinancing means you take out a new loan to pay off your existing loan. This is often done to take advantage of a lower market interest rate or some other financially driven need. You can read more about refinancing here.

 

Why Choose Recasting?

Recasting is one of the simplest ways you can positively affect your mortgage. Here are some of the advantages of recasting:

  • You don’t need to qualify for a new loan. You already have the loan.
  • You may pay less interest over the course of your loan.
  • Your new monthly payments could be lower.
  • You incur minimal to no fees to recast.

 

Why Choose Refinancing?

We talk more about when you should refinance here. But when considering refinancing versus recasting, it’s important to note that refinancing your mortgage loan may allow you to change your interest rate (capturing a lower market rate, hopefully) and the length of your loan. If you are thinking about refinancing, consider how long you will remain in your current home and how long it will take to recoup the closing costs involved with the new loan. Check out our Should I Refinance Calculator.

 

The Third Option

You can choose to prepay your principal earlier without recasting or refinancing. This is accomplished by making additional payments on top of your current monthly mortgage payment. By doing this, you can save money on interest and pay your mortgage off early.

If you’re thinking about refinancing or recasting, there are a lot of factors to consider. Why not reach out to a helpful Local Gateway Branch and let them help you think through all of your options.