This week, Craig Siminski, of CMS Retirement Income Planning, shares with us an article discussing how a mortgage recast works to enable a homeowner to reduce a monthly mortgage payment without having to refinance and why it may be an appealing solution in certain situations:
If you would like to reduce your monthly mortgage payment without having to refinance, then you may want to explore a mortgage recast.
When you recast your mortgage, you put money toward the principal balance of your current home loan. Your mortgage lender then recalculates (reamortizes) your loan based on your new, lower balance, which reduces your monthly payment. Your interest rate and the number of years remaining on your loan stay the same.
Here are three scenarios where a mortgage recast might be especially appealing.
You have extra cash on hand, perhaps from a bonus or an inheritance. It’s sitting in a low-yield account.
You are close to retirement or retired. You want to keep your home but lower your monthly expenses.
You bought a new home with a smaller down payment than you intended because your old home is still on the market. But once your old home sells, the proceeds can be applied to your new mortgage through a recast.
Refinancing your mortgage may be a better option if your goal is to pay off your loan faster by shortening the term, or if you want to lower your interest rate or obtain cash. But if your objective is simply to lower your monthly payment and save on interest charges, then recasting your mortgage may be appropriate.
Recasting is generally simpler and less expensive than refinancing because you’re keeping the same mortgage instead of applying for a new one. It doesn’t require an extensive application, a credit check, a new appraisal, or closing costs, though you typically will need…
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Craig Siminski is a CERTIFIED FINANCIAL PLANNER™ professional, with more than 25 years of experience. His goal is to provide families, business owners, and their employees with assistance in building their financial freedom.
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