Understanding the Difference: Refinancing vs. Recasting Your Mortgage

When you own a home, you have options to manage your mortgage and make it work better for you. Two common strategies are refinancing and recasting—but they’re very different, and it’s important to know how each one works.

Here’s a quick breakdown to help you decide which might be right for your situation!

What is Refinancing?

Refinancing means replacing your current mortgage with a brand new one. You’ll apply for a new loan, and if approved, the new loan will pay off your old one. Homeowners often refinance to:

• Get a lower interest rate
• Change the type of loan (like going from an adjustable-rate mortgage to a fixed-rate mortgage)
• Shorten or lengthen the loan term
• Access equity through a cash-out refinance

Example:

A couple had been searching for their dream home and found it while interest rates were high. If they waited for rates to drop, they would have missed out on the perfect property. So they bought now and plan to refinance later when rates improve. You often hear the phrase: “Marry the house, not the mortgage." 

This means you’re not locked into a high rate forever—you can always refinance when rates come down but you should buy the right house when it comes along. 

Cost of Refinancing:

Refinancing typically involves closing costs that are typically about 1%   of your loan amount. These can include appraisal fees, title insurance, lender fees, and more. Some lenders will offer to pay these fees for you as an incentive to remain their life-long client.  

Potential Drawbacks:

• You’re starting a new loan, which could reset your loan term (adding more years of payments).
• Closing costs can add up, so it’s important to calculate your break-even point.
• You’ll need to qualify based on your credit and income, just like you did with your original loan.

What is Recasting?

Recasting is simpler and designed to lower your payment when you are planning to make a large lump sum principal payment.   You keep your existing mortgage, including the same interest rate and loan term. Here’s how it works:

• You make a large lump-sum payment toward your mortgage principal.
• The lender recalculates your monthly payment based on the new (smaller) loan balance.

Example:

Recently, a client wanted to make an offer on a new property without making the offer contingent on selling their current home. Because the market was competitive, they needed to buy the new property first, before selling the old one. After they sold their previous home, they used the proceeds to pay down the principal on their new mortgage, and then recast the loan. This lowered their monthly payment without changing their interest rate or loan term.

Cost of Recasting:

Recasting typically has a much smaller fee—usually a flat fee of around $150 to $500, depending on the lender.

Potential Drawbacks:

• Not all loans are eligible for recasting (for example, many jumbo loans, FHA, and VA loans don’t allow it).
• You’re still locked into your original interest rate—if rates have dropped significantly, refinancing might save you more in the long run.
• You need a large lump sum available to pay down your loan principal.

Important Note: Not all loans are eligible for recasting, and some lenders make it easier than others. For example, jumbo loans, FHA loans, and VA loans often do not allow recasting. If you’re considering recasting in the future, let your lender know during the loan application process so they can help you choose a loan product that offers this flexibility.

Which is Best for You?

• Refinancing could be right if interest rates have dropped since you got your loan or you want to change your loan’s structure.
• Recasting could be a great choice if you’ve come into extra money (like a bonus or inheritance) and want to lower your payments without changing your loan’s terms.

Both options help you manage your mortgage in a way that works for your life and financial goals.

Contact us today to put you in touch with a lender who can help you decide which option is best for your situation.