What is mortgage recasting and why do it?

Why request a loan recast

One of the most common reasons for a loan recast, particularly when the real estate market is sluggish, is that some people buy homes before they sell their previous homes. They end up paying two mortgages temporarily. When their previous home sells, they can use the proceeds to pay down the balance and recast their loan.

"While a loan recast cannot be done within the first 90 days of a loan, after that, borrowers can use the proceeds from the sale of their previous home to reduce the principal on the new loan and therefore reduce their payments through re-amortization," Goyda says.

Yamamoto says loan recasts are not unusual at Bank of America, and often occur when a customer inherits money or receives a large bonus and wants to pay down the mortgage balance.

Before requesting a loan recast, borrowers should consider their goals and options.

"If your main goal is to reduce your monthly payments rather than pay off your loan faster, a recast could be a good option," Goyda says. "However, the decision should be based on an overall financial plan. If you have other debts to pay or want to make other investments, you might want to use the cash for something other than paying down your loan balance in a lump sum. I would recommend that someone consult with a financial adviser."

Skaff suggests that homeowners ask their lender what their options are if they are thinking of refinancing because a loan recast, a streamlined refinance with the same lender or a portfolio modification could be a better choice than a standard refinance.

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