Refinanced your mortgage at a new, historically low rate, but still feel like your payments are too high? If so, then a “new” strategy called “recasting” or “re-amortizing” may be the next step for you. Although it has been around forever in theory, only recently has this tactic started to take hold thanks to tough refinancing and credit requirements. The strategy allows borrowers to lower monthly payments on existing, fixed-rate home loans by paying a small fee. They do not have to apply for a new loan, pay for an appraisal or pay other loan fees that would likely be associated with a conventional refinance. Essentially, recasting involves putting a sum of cash directly against the principle whether they have refinanced already or not. You can do this at any time with just about any mortgage, but in a recasting event the lender also agrees to reduce the monthly payment over the remaining term of the loan. This saves interest and money each month.
This type of “refinancing” strategy is particularly good for homeowners who cannot refinance due to no-documentation loans or who could not re-qualify even for the mortgages they currently hold under today’s tighter regulations – something that is becoming a problem for many self-employed professionals in today’s market.
However, getting permission for this tactic can be tricky. You need to have a loan in good standing, of course, but you also need permission from the loan servicer and anyone else with an interest in the loan, which can mean tracking down the owner of your note, who is not likely to be the original lender. Lenders also charge their own individual fees and have additional protocol for recasting loans.
This option has been around a long time, but banks do not publicize it because it is not as profitable as refinancing. Only as the credit market has gotten tighter are more people turning to this refinancing alternative. Also, no lender is obligated to recast a loan, “Dr. Don,” a real estate columnist with Bankrate.com, reminds readers. “Some lenders do it as a convenience for their customers [or so] the lender can hold onto a loan that might otherwise be refinanced”.