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Mortgage Recasting

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  • Sajimone Sajimone 
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    Status: Physician, Small Business Owner
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    Joined: 01/09/2016

    I came across this article from semiretired md. Seems interesting and ive never heard of this “recasting” before ? Has anyone done this ? It seems like it would lower the monthly payments without changing the interest rate, terms, or time to paying off the mortgage. Obviously those in the pay off your mortgage early camp won’t be interested in this.. but those who feel its better to invest the extra principal payments may find this useful? Thoughts?

    https://semiretiredmd.com/?s=Recasting+

    #228301 Reply
    Lordosis Lordosis 
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    Status: Physician
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    That seems silly. Why would you pay extra then recast so you can pay less? I am sure there is a fee.

    “Never let your sense of morals prevent you from doing what is right.”

    #228302 Reply
    Avatar ZZZ 
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    Pointless.

     

    #228304 Reply
    Liked by Zaphod
    Avatar familydocPA 
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    Status: Physician
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    I briefly considered it.  I had a large lump sum from the sale of a rental property and was trying to decide how to deploy it.  I was considering a move that would result in a temporary decrease in pay, so throwing it at the mortgage and recasting would lower my monthly payment by about $1500.  In the end I didn’t do it, but that is the only type of situation where it might make sense.

    The fee to do so at my bank was $100.

    #228313 Reply
    Avatar danesgod 
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    Status: Spouse
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    We’re new to our mortgage (a jumbo Bay Area one, with interest significantly in excess of the deduction limit), but it came with the option for free recasting (online too I believe, so its easy) with any dollar amount over $25k. Mathematically it will probably never “make sense” (low home interest rate vs. investment returns), but I fall slightly into the camp of people that, once sitting on a larger nest egg, would look to paying down my mortgage early. Recasting assists with monthly cash flow, in case my wife ever wants to work less (that said, we could just have it invested and used that money). I’d consider using the option if we ever had a cash pile (e.g. inheritance, large bonus), but on a case-by-case basis.

    I haven’t actually crunched numbers on interest in excess of mortgage interest limit / paying off early / recasting as compared to investment returns, because we just bought the house and haven’t had any real lump sums of cash.

    Dunno, I’m not complaining about having the option, even if I never use it.

    #228360 Reply
    Avatar Infinity 
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    Status: Physician
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    Joined: 05/25/2019

    It does not make sense to me.

    The article said that by paying $10K now (with $250 fee) to recast a 30 years loan, the monthly payments will go down by $52 and will save $8200 of interests over 30 years.

    If I have extra $10K and I do not know what to do with it.  I would throw it in the index funds rather than having $10K ties up for the life of the loan.  I am sure that in 30 years, the index funds will give me a lot more than $8200.

    5%/yr of compound gains from S&P would make $10K to $43K over 30 years, LOL.

    #228366 Reply
    Liked by Zaphod
    ENT Doc ENT Doc 
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    Status: Physician
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    Joined: 01/14/2017

    Those who are in the payoff your mortgage camp should be excited about this just the same, perhaps even more. The rate of return on the recast is the same as paying off the mortgage early in a traditional sense, assuming no fees (which you can get). However, instead of delaying your reduction of fixed payments you get the reduction earlier with lower payments.

    I would be happy to have this feature as it offers more immediate protection against income variability by reducing fixed costs earlier.

    #228385 Reply
    Avatar familydocPA 
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    It does not make sense to me.

    The article said that by paying $10K now (with $250 fee) to recast a 30 years loan, the monthly payments will go down by $52 and will save $8200 of interests over 30 years.

    If I have extra $10K and I do not know what to do with it.  I would throw it in the index funds rather than having $10K ties up for the life of the loan.  I am sure that in 30 years, the index funds will give me a lot more than $8200.

    5%/yr of compound gains from S&P would make $10K to $43K over 30 years, LOL.

    Click to expand…

    Your analysis excludes the improved cash flow of $52/mo for 30 years, which could also be invested.

    #228386 Reply
    Zaphod Zaphod 
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    It does not make sense to me.

    The article said that by paying $10K now (with $250 fee) to recast a 30 years loan, the monthly payments will go down by $52 and will save $8200 of interests over 30 years.

    If I have extra $10K and I do not know what to do with it.  I would throw it in the index funds rather than having $10K ties up for the life of the loan.  I am sure that in 30 years, the index funds will give me a lot more than $8200.

    5%/yr of compound gains from S&P would make $10K to $43K over 30 years, LOL.

    Click to expand…

    Your analysis excludes the improved cash flow of $52/mo for 30 years, which could also be invested.

    Click to expand…

    Inflation, even low would make that 25 bucks in 30 years. Seriously though, its not worth analzying. If you have 10k to throw at the loan you already have 28/month if you simply split it up over 360 months. You’d go to the trouble for a 24$ difference that only is that much initially (inflation remember). Your npv is higher with the cash you already have. I dont get how any of these scenarios dont make sense immediately to people. If you have the cash to pay it down you literally already have the “cash flow”. Switching pockets, etc…

     

    Your investing return is almost always going to be much better in all but the oddest of scenarios to do lump sum versus dca over a 30 year period, which is what the question is when put that way.

    #228396 Reply
    Avatar Infinity 
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    Status: Physician
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    Joined: 05/25/2019

    Your analysis excludes the improved cash flow of $52/mo for 30 years, which could also be invested.

    Click to expand…

    Agreed.

    #228397 Reply
    Sajimone Sajimone 
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    Status: Physician, Small Business Owner
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    Joined: 01/09/2016

    appreciate everyone’s input!  the argument to use it as a tool for the invest-now camp seems negligible.  but ENT doc may be right.. maybe payoff early camp could use it as a tool?  improved cash flow albeit small difference for a doc but a difference that can still be thrown at the mortgage principal with any extra additional payments?  perhaps rental properties with mortgages.. to improve cash flow and pay less interest over time.  banks will market refinancing any day… but they don’t mention recasting.  is there an indication to recast a mortgage?  has any one done it and why?

    #228422 Reply
    ENT Doc ENT Doc 
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    Status: Physician
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    I considered going with a mortgage that did this. But I settled on one with much lower rate instead. Had I picked the recasting feature I would have considered paying it off early but only as it made sense for both financial reasons as well as for the purposes of reducing fixed costs as I closed to retirement.

    If it’s an all else equal scenario there’s no harm in doing this. But I wouldn’t pay a fee to do it.

    #228459 Reply
    Liked by Zaphod
    Lordosis Lordosis 
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    Status: Physician
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    If you put extra towards your mortgage it will be paid off early. If you recast will it extend it back out to the full term? It must if you are paying less.

    “Never let your sense of morals prevent you from doing what is right.”

    #228529 Reply
    White.Beard.Doc White.Beard.Doc 
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    Early lump sum payment to reduce mortgage principal reduces future interest cost and then recasting could free up extra monthly cash flow.

    ARMS automatically recast every time the interest rate changes.

    While most folks who have enough cash to prepay their mortgage don’t typically need extra future cash flow, there could be limited circumstances where recasting might make sense. Perhaps a spouse transitioning from employment to a stay at home parent, or taking early retirement. Of course, the mortgage company has to agree to a recast if it wasn’t part of the original agreement. And if interest rates have gone up, the mortgage company will typically not agree to recast without substantial fees.

    #228531 Reply
    Liked by Sajimone
    Zaphod Zaphod 
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    Status: Physician, Small Business Owner
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    Joined: 01/12/2016

    Early lump sum payment to reduce mortgage principal reduces future interest cost and then recasting could free up extra monthly cash flow.

    ARMS automatically recast every time the interest rate changes.

    While most folks who have enough cash to prepay their mortgage don’t typically need extra future cash flow, there could be limited circumstances where recasting might make sense. Perhaps a spouse transitioning from employment to a stay at home parent, or taking early retirement. Of course, the mortgage company has to agree to a recast if it wasn’t part of the original agreement. And if interest rates have gone up, the mortgage company will typically not agree to recast without substantial fees.

    Click to expand…

    If it was free, its basically no big deal and could be useful.

    #228532 Reply

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