Personal Finance: An Introduction to Loan Recasting : Bryan Ellis ...

Recasting is a potential option for many more homes than are presently eligible for refinancing.

Thanks to still-stringent requirements for financing and the vast number of homes out there that are presently underwater, mortgage brokers and lenders are looking for other ways to help homeowners pull cash out of equity-poor or equity-empty homes. The process is called ?loan recasting,? and it can help you shrink your monthly mortgage payment without having to refinance. Here?s how it works:

When you recast your loan, you literally put that loan in a new perspective by applying a large, lump sum directly to your mortgage principal and then adjusting the entire loan to reflect the new balance. Once you have the new balance in place, mortgage interest is recalculated, along with any other fees like insurance, and a new payment is calculated. That payment will be lower than your previous payment even if you do not adjust the terms of your loan because you will have taken out a large chunk of principal in the previous step. Even better, instead of thousands in lending fees, you could pay as little as $150.

Of course, there are some potential problems with what may seem, at first, to be an ideal solution to an inability to refinance. For starters, FHA and VA loans cannot be recast, and some lenders prohibit recasting on adjustable rate mortgages and jumbo loans. In addition, you need at least $5,000 to make a serious impact on a recast loan, and some lenders require more. A recast also will not shorten your loan term or change your interest rate.

On the upside, if you have a fixed-rate, conventional loan, you almost certainly can recast it if you have the funds. Furthermore, you only need to have those funds once, making recasting a great solution if you are presently in possession of a one-time cash infusion ? for example, from an inheritance ? that could make a difference for your monthly payments but will not, ultimately, affect your regular monthly financial situation. Some underwater homeowners who are determined to keep up their mortgage payments find recasting to be a good alternative to the constant fear of foreclosure since a recast will permanently lower your monthly payments even though it does not ultimately diminish the term of the loan or the amount of principal owed.

Would you consider recasting your loan? Have you done it?

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Category: Personal Finance, Real Estate

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