Mortgage Recast vs. Mortgage Loan Modification
What Is Mortgage Loan Modification?
A loan modification is something you use to save your home from going into foreclosure. The Consumer Financial Protection Bureau describes it as “loss mitigation.” Depending on your arrangement with the lender, any number of solutions are possible.
One type of loan modification may lower your monthly mortgage payments. You may be offered a different mortgage rate, an expanded loan term, or other options all designed to help you to get back on track with monthly payments.
You will want to ask the lender how much the loan modification will cost you regarding upfront expenses like a loan origination fee, closing costs, etc.
You will also want to know how much you’ll pay over the lifetime of the modified loan. Many borrowers aren’t worried about the extra money they might spend over the term of a modified loan; their priorities are the lower monthly payment.
What Is a Mortgage Recast?
Recasting your mortgage or re-amortizing it means making a one-time, lump-sum payment toward the principal balance of the FHA home loan.
The lender recalculates the loan based on your lump-sum payment, which may result in a lower monthly rate than you had before.
Your interest rate typically remains the same when conditions are normal, be sure to ask the lender about interest rates in the current housing market and whether or not you’ll be offered a similar rate to your original loan.
Why do people recast their mortgage? According to Rocket Mortgage, one of the most common reasons involves house hunters who bought a new property but are still trying to sell the old one.
After the sale of the old home, the borrower may approach the lender to discuss recasting the loan using the sale proceeds to make the lump sum payment.
It can also be an option for those who have been paid substantial bonuses, have received an inheritance, or another windfall of cash. In some cases, it may make sense to recast a mortgage; in others, it may be smart to simply pay off the loan depending on how much is left.
Mortgage recasting typically costs a small fee (under $400 in some cases, depending on the lender), so consider the fee when adding up the costs of recasting or paying off the loan in full.
Sometimes It Pays to Refinance
Don't Forget Your Closing Checklist
Your Home Loan is Called a Mortgage
Do you know what's on your credit report?
Learn what your score means.