Recasting Your Mortgage Can Be Strategic—and Save You Money

If you’re selling and buying simultaneously—or buying before your routine bonus comes in or before vesting stock options—planning to recast your mortgage can allow you to purchase strategically in a competitive field, and save money. (Ask your loan officer about loan products that allow it.) 

A lender allowing you to recast your mortgage means you can pay significant extra funds toward your mortgage principal to drop your loan balance and monthly payment. What’s key here is that the extra funds go toward the principal, not just the interest. You’d do so without increasing the interest rate or paying closing costs, as you would with a refinance.

Planning ahead to decrease your loan amount gives you flexibility in these ways:

If you’re buying a home right before a routine bonus (or before other funds via stocks or grants become available), you can pursue a purchase opportunity without waiting. 

What this means in a competitive market: 

This could allow you to purchase in a higher price range, because you know you’ll be able to quickly get the loan payments to a more manageable level without having to refinance (which requires a new interest rate and more closing costs).

If you’re selling a current home and buying a new one simultaneously (or back-to-back), you might initially have enough funds on hand for a new-home downpayment—but not as much cash as you would if your current home were already sold. By planning to recast, you could purchase with the funds on hand, and when you receive the sale proceeds from your home sale, apply those additional funds toward the loan balance. 

If this extra payment brings your equity (your cash input) to higher than 20% of the home’s value, you could then remove private mortgage insurance (PMI) while also reducing the monthly principal and interest payment.

What this means in a competitive market: 

In addition to the flexibility to purchase in a higher range, this allows you to sell your home on your terms, without asking prospective buyers to accommodate a home purchase contingency on your end––which could limit your buyer pool or weaken some of the leverage you’d have as a seller.
Ask your loan officer if recasting a mortgage is a workable strategy for you.

Just starting the home buying process? Get in touch and we’ll connect you with a lending team.