What is a Mortgage Recast Calculator?
A Mortgage Recast Calculator is a financial tool that helps homeowners estimate how much their monthly mortgage payments will decrease after making a lump sum payment on their loan principal. Unlike refinancing, a mortgage recast allows you to reduce your monthly payment without changing your loan's interest rate or term. This makes it a valuable option for those looking to lower their payments without the additional fees associated with refinancing.
Recast Mortgage Calculator
Mortgage Recast Savings:
| Category | Original | New | Savings |
|---|---|---|---|
| Monthly Payment | |||
| Total Interest Paid | |||
| Payoff Period |
How Does a Mortgage Recast Work?
Mortgage recasting involves making a lump sum payment towards your mortgage principal. By reducing the principal, your lender recalculates (or “recasts”) your monthly payment based on the remaining balance and the original interest rate. This effectively reduces your monthly payment while keeping the loan's term the same.
Benefits of Using a Mortgage Recast Calculator
There are several advantages to using a Mortgage Recast Calculator:
- Estimate Savings: See how much your monthly payments will decrease before deciding to make a lump sum payment.
- Save on Interest: By reducing the principal, you’ll pay less interest over the life of the loan.
- Lower Monthly Payments: Recasting can reduce monthly payments, providing financial flexibility without extending the loan term.
- Avoid Refinancing Fees: Mortgage recasting does not typically require appraisal or application fees, unlike refinancing.
How to Use a Mortgage Recast Calculator
Using a Mortgage Recast Calculator is straightforward. Follow these steps:
- Enter Your Mortgage Details: Input your current loan balance, interest rate, and remaining loan term.
- Specify the Lump Sum Payment: Indicate the amount you plan to pay towards the principal.
- Calculate New Monthly Payments: The calculator will show your new monthly payment amount and estimate interest savings over the life of the loan.
This calculation helps homeowners make informed decisions about whether a recast is a viable option for lowering monthly expenses.
Example: Calculating a Mortgage Recast
Imagine you have a mortgage with the following details:
- Current Loan Balance: $300,000
- Interest Rate: 4%
- Remaining Loan Term: 25 years
- Lump Sum Payment: $20,000
By entering this information into a Mortgage Recast Calculator, you’ll see how much your monthly payment decreases and how much interest you’ll save over the remaining loan term. For example, your monthly payment might drop from $1,584 to $1,494, providing extra financial flexibility each month.
Mortgage Recasting vs. Refinancing
Many people confuse mortgage recasting with refinancing, but they are different:
- Mortgage Recasting: Involves making a large payment to reduce your principal, lowering monthly payments without changing the interest rate or loan term.
- Refinancing: Replaces your current loan with a new one, often with a different interest rate or term, which may involve fees and an application process.
Recasting is ideal for those who have extra cash to put towards their mortgage and want to lower their payments without the added fees of refinancing.
Is a Mortgage Recast Right for You?
Before deciding to recast, consider the following:
- If you have a low interest rate, recasting may help keep your payments manageable without affecting your rate.
- Recasting is beneficial if you have a substantial amount to put towards the principal.
- It’s ideal if you plan to stay in your home long-term and want lower monthly payments without the hassle of refinancing.
Consult with your lender to ensure recasting is an option for your loan, as some loans do not allow for recasting.