Mortgage Recasting vs. Refinancing: Which is Better?

When you have a large sum of money—perhaps from an inheritance, a bonus, or the sale of a property—you have several options for your mortgage. Two of the most popular are mortgage recasting and **refinancing**. While they both involve changing your loan, they work very differently.

What is Mortgage Refinancing?

Refinancing means replacing your current mortgage with a brand new one, often with a different interest rate and a new term (e.g., switching from a 30-year to a 15-year loan).

• Pros: Can lower your interest rate significantly if market rates have dropped. Can change your loan type (e.g., from an ARM to a fixed rate).
• Cons: High closing costs (typically 2-5% of the loan amount). Requires a credit check, appraisal, and income verification.

What is Mortgage Recasting?

Recasting (or "re-amortization") is much simpler. You pay a large lump sum (usually $5,000 or more) toward your principal. The lender then recalculates your monthly payments based on the new, lower balance, but keeps your original interest rate and original payoff date.

• Pros: No credit check or appraisal required. Low fees (usually $250 - $500). Guarantees a lower monthly payment.
• Cons: Does not lower your interest rate. Requires a large upfront cash payment.

Comparison Table

Which One Should You Choose?

Choose Refinancing if current interest rates are significantly lower (at least 0.5% - 1%) than your existing rate and you plan to stay in the home long enough to recoup the closing costs.

Choose Mortgage Recasting if you have a low interest rate already, but want to reduce your monthly financial burden and have a significant lump sum available.