Mortgage Recast or Refinance Loan – Which Option Is Best?

October 18, 2019
Integrity First Lending

Are you looking to lower your monthly home loan payment? You can achieve that goal with a mortgage recast or a refinance loan. Plus, by recasting or refinancing your mortgage, you’ll also pay less in overall interest.

To know which option would be your best financial move, you need to understand how they differ. Here, we explain how mortgage recasting and refinancing work and what to consider in making a decision about your home loan.

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How a Mortgage Recast Works

Recasting requires you to make a sizeable lump-sum payment toward your home loan balance. The minimum amount varies by lender, but in most cases, a mortgage recast takes a payment of at least $5,000 and a few hundred dollars in fees.

After you ante up the necessary cash, your lender will recalculate your remaining mortgage payments based upon the lower balance. You can expect the total due each month to drop and, because you paid down the principal, you’ll ultimately end up paying less interest.

How a Refinance Loan Works

Refinancing requires you to apply for a new home loan and use it to replace your existing mortgage. Borrowers often go this route to switch from an adjustable-rate to a fixed-rate or to get a better interest rate.

With a refinance loan, you can lower your monthly home loan payment and pay less in interest. However, when you take out a new mortgage, you’ll be responsible for paying the associated fees and closing costs.

Is Recasting or Refinancing Right for You?

A refinance loan typically costs more than a mortgage recast. And, refinancing means going through the whole home loan application process again -- and recasting doesn’t require a credit check or appraisal.

On the other hand, a refinance loan allows you to lower your interest rate or make changes to your mortgage terms. With recasting, you can’t do either. And, with some types of mortgages, including FHA and VA financing, recasting is not an option.

Furthermore, if you have a lump sum of cash available, using it to pay down your home loan balance may not be the best use of the money. You might be better off putting it toward high-interest credit card debt, for example, or creating an emergency savings fund.

Should you apply for a refinance loan? Or would a mortgage recast make better sense? Financial circumstances vary, so neither option is best for every borrower. To make an informed decision, consult with the trusted mortgage brokers at Integrity First Lending.

Our dedicated loan officers have decades of combined experience in the Utah home lending industry, and we’re happy to offer advice on recasting and refinancing. If you want a lower monthly home loan payment and need expert help deciding between a mortgage recast and a refinance loan, contact Integrity First Lending in South Jordan or Tooele, Utah, today.

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