A Little-Known Strategy for Cutting Mortgage Payments (recasting)

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HOMEOWNERS looking to lower their monthly mortgage payments and also save some on interest may be able to do so without all the hefty fees and daunting credit requirements of refinancing.

A little-known strategy, called “recasting,” or “re-amortization,” is available through some mortgage lenders and servicers.

It involves paying off a lump sum of the principal amount and asking to have the monthly payments reset according to the original interest rate and loan terms. The lump sum reduces the principal, so your new monthly payments decrease slightly and you save on interest paid over the life of the loan.

Lenders typically charge an administrative fee of $150 or more for this service, though borrowers are not required to pay closing costs or submit to another credit check, because they are not asking for a new loan.

Recasting works well for those unable to qualify for refinancing amid the ever-toughening credit guidelines — perhaps because they are self-employed or have less-than-stellar credit — as well as for those with extra cash, like a year-end bonus.

...

There are a few caveats to recasting, however. The first is that you may need to have a large sum on hand. JPMorgan Chase, for example, charges a $150 fee and requires a minimum $5,000 payment toward the principal.

Another issue is having a lender, or loan servicer, that offers the service. And even those that do may impose restrictions. JPMorgan Chase and Bank of America exclude loans backed by the Federal Housing Administration and the Department of Veterans Affairs, and loans that were sold off and securitized may also need investor approval.

http://www.nytimes.com/2011/01/02/realestate/mortgages/02Mort.html

[chri'stina 190]

Interesting and something we may try in the future. - oops nevermind about the rest of what I wrote.

Edited January 7, 2011 by chri'stina

[I AM NOT THAT GUY 5,715]

I think ARM's do this automatically on a periodic basis.

If you pay over the minimum amount early in your mortgage, that has the greatest effect in reducing your principal later on, due to compound interest. At the end of the loan, it doesn't really matter that much, other than most investments are paying less than your mortgage rate, so your best investment is often paying off that mortgage as fast as you can.

[scandal 951]

As the article points out, if your loan has been sold off (e.g. to Fannie or Freddie, as the vast majority of currently issued conforming loans are), I doubt you can do this since the loan servicer doesn't actually hold the loan and is powerless to do this recasting.

Years ago, I had a loan at HSBC which they kept on their books and which offered a really neat feature - if rates dropped half a point in the open market, they offered me the chance to keep the same loan without refinancing but buy-down to the new rate for a "servicing fee" of $500. Sort of like a quickie internal refinance. No new loan docs, no appraisal or credit report or all the other jazz.

Regarding the "recasting" strategy in this article, I really don't see the value in that. If you have a chunk of cash e.g. $5K to put toward the mortgage you can already do one of two things without any special permission from the lender: (1) if you're happy with your monthly payment, then just prepay $5K, keep the same monthly payment, but your loan will end that much sooner on the back end. You still save a hunk of interest payments over the life of the loan. I used to do this all the time but now that I locked in at a rock bottom 4% 15yr loan I doubt I ever will again. (2) If you really want to "drop" your monthly payment without changing the end date of the mortgage, then use the $5K to soften the blow of your payment each month. There's no free lunch - with the same $1 applied to principal you can't simultaneously drop your payment and shorten the end date. You can do one or the other but not both. Either will decrease your interest paid, so it's more a question of your monthly cashflow vs. how quickly you want to be mortgage free.