What a mortgage recast does
A mortgage recast, sometimes called re-amortization, is a way to lower your monthly payment without changing your loan. You make a large one-time payment toward principal. The lender then recalculates the payment on the smaller balance, spread over the same remaining term and at the same interest rate. Fannie Mae describes a recast as a re-amortization over the remaining term after a substantial principal curtailment, with the only change to the note being a lower monthly payment. Nothing is refinanced, so there is no new loan, rate or payoff date.
This calculator shows what that does to your numbers, and it also shows the alternative: paying the same lump sum and simply keeping the payment you have now. Those two choices start from the same lump sum and end in different places, so it helps to see them next to a baseline of paying nothing extra.
The formula
The payment on a fixed-rate loan with balance B, monthly rate i (the annual rate divided by 12) and n months left is the same formula each time:
payment = B × i ÷ (1 − (1 + i)−n)
Today's payment uses the full balance. After a recast the lender uses B minus the lump sum, with the same i and the same n. Keeping your payment means paying the old amount on the smaller balance, so the loan is repaid before month n. When the rate is zero the formula becomes a straight division of balance by months.
Worked example: 300,000 at 6% with 360 months left
With a balance of 300,000, a 6% rate and 360 months remaining, the payment is 1,798.65. Over the full term you would pay 347,514.57 in interest. Now suppose you put 30,000 toward principal, which is 10% of the balance.
- Recast: the balance becomes 270,000 and the payment falls to 1,618.79, which is 179.87 a month lower (10.0%). The loan still runs 30 years. Total interest is 312,763.11, so you save 34,751.46.
- Keep your payment: you continue to pay 1,798.65 on 270,000. The loan ends after 279 payments (23 years 3 months), 81 months early. Total interest is 230,750.87, so you save 116,763.70.
The recast gives you breathing room in the monthly budget. Keeping the payment saves 82,012.24 more in interest, because every payment, starting with the first, retires principal faster. Neither is better in general. If cash flow is tight or you expect other expenses, a lower payment has value. If you want to be debt-free sooner, the interest savings and the earlier end date have value.
How big the lump sum is matters
| Lump sum | New payment | Payment cut | Months, keep payment |
|---|---|---|---|
| 5,000 | 1,768.67 | 29.98 | 344 |
| 30,000 | 1,618.79 | 179.87 | 279 |
| 90,000 | 1,259.06 | 539.60 | 176 |
The payment drops in direct proportion to the share of the balance you pay off. Pay 1.7% and the payment falls 1.7%; pay 30% and it falls 30%. A small lump sum barely moves the payment, which is one reason many servicers set a minimum.
A shorter loan shows the same pattern
The pattern holds for any loan. A 50,000 balance at 4.5% with 60 months left has a payment of 932.15. A 10,000 lump sum recast lowers it to 745.72 for the same 60 months and saves 1,185.81 of interest. Keeping the payment pays the loan off in 47 months and saves 2,235.65. At a zero rate there is no interest to save, so a recast simply spreads a smaller balance over the same months: 120,000 over 240 months is 500.00, and after 20,000 down it is 416.67.
Recast, refinance or extra payments
A refinance replaces your loan with a new one. You can change the rate, the term or both, but you pay closing costs and the new rate may be higher or lower than today's. A recast keeps your rate and term, so it only makes sense if your current rate is already good. Bankrate reports that a recast usually costs a few hundred dollars, while closing costs on a refinance are commonly a few percent of the loan. To test a rate change, use the refinance break-even calculator. If you do not want your servicer to re-amortize at all, you can apply the same money as an extra payment, which keeps the payment and shortens the loan. That is the keep-payment column, and the mortgage payoff calculator models recurring extras too.
What this calculator does not include
Real recasts have conditions. Servicers commonly require a minimum lump sum, and Bankrate gives $5,000 or $10,000 as typical examples. If a fee applies, it is often in the range of $150 to $500, and some servicers do not offer recasts. Government-backed loans such as FHA, VA and USDA mortgages generally cannot be recast. The new payment takes effect only after your servicer completes the paperwork, so keep paying your current amount until it confirms the change. This page does not include any fee, so it does not say how long it takes for savings to repay one, and it makes no break-even claim. It also leaves out escrow for taxes and insurance, mortgage insurance, and variable rates. Ask your servicer for its exact policy before sending money.
For the full payment on a new purchase, see the mortgage calculator, and for what you can afford, the house affordability calculator. If extra cash could go to investing instead, the mortgage vs investing calculator compares the two.
Mortgage recast questions
How do I calculate my new payment after a recast?
Subtract the lump sum from your balance, then use the payment formula with your current rate and remaining months. For 300,000 less 30,000 at 6% over 360 months the new payment is 1,618.79.
Does a recast change my interest rate or loan term?
No. A recast keeps the rate and the remaining term, and only the monthly payment changes. A refinance is what changes the rate or term.
Is a recast better than making extra payments?
It depends on what you want. A recast lowers your required payment. Extra payments with the same payment shorten the loan and save more interest: in the example 116,763.70 against 34,751.46. You can also pay extra and still have the option to ask for a recast later.
How much does a mortgage recast cost?
Servicers set their own fees, and some charge none. Bankrate reports that when there is a fee it is usually $150 to $500. This calculator does not include it, so add it to your own comparison.
Can I recast an FHA, VA or USDA loan?
Generally not. Government-backed loans usually cannot be recast, though rules differ by servicer. Conventional loans are the usual candidates. Ask your servicer.
What happens if my lump sum is bigger than my balance?
Then you would pay the loan off, which is a payoff and not a recast. The calculator asks for an amount below the balance.