In plain text
Payment = (B - L) × (r) ÷ (1 - (1+r)^(-n))
What is a mortgage recast?
A recast is an adjustment to your existing mortgage, not a new loan. You make a large principal payment, and the lender lowers the balance and recalculates your monthly payment over the years that remain. The rate and the end date of the loan stay the same. Lenders charge a fee for the recast and set their own rules about the minimum payment and when it can be requested.
How do I use it?
Enter the mortgage balance you still owe, the interest rate, and the years left on the loan. Then enter the lump sum you plan to pay toward principal and the recast fee the lender quoted. The results show the new monthly payment, the monthly saving, the time to repay the fee, and the net saving over the remaining term.
How does the calculation work?
The current payment is the standard level payment on the balance, the rate, and the remaining months. After the recast, the balance is the old balance minus the lump sum, and the payment is recalculated on that lower balance over the same remaining months. The monthly saving is the difference between the two payments.
The net saving compares the total of the current payments with the lump sum, the fee, and the total of the new payments. The time to repay the fee is the fee divided by the monthly saving.
How is a recast different from a refinance?
A refinance replaces the loan with a new one, which means a new rate, a new term, and new closing costs. A recast keeps the rate and the end date, and usually costs much less. It only helps if the rate on your loan is already good, because a recast cannot lower the rate.
What can the result not tell me?
The calculator does not know the recast fee or minimum payment your lender requires, and it does not check whether your loan is eligible. Some loans, such as certain government-backed mortgages, may not allow a recast. The result also leaves out taxes, insurance, and any escrow changes.
Ask your lender for its recast terms in writing and compare them with the figures here before you pay.
Is a lump sum better kept as savings?
A lump sum put toward a mortgage is a return equal to the loan's rate, because it stops interest that would otherwise be charged. Keeping the money in savings gives a return that depends on the account, and you can reach it again if you need it. Set aside an emergency fund before paying down a loan, because a recast payment cannot be taken back.
Compare the rate on your mortgage with the rates you can earn on savings and with any other debts you carry.
How often can I recast?
Lenders set their own limits on how often a recast is allowed and how large the lump sum must be. Some allow a recast only once in a set period, and others allow more. Read the loan documents or ask the servicer before you plan a payment around a recast.
