When the situation arises that you have a lump sum of cash to pay down your existing mortgage, there may be different options available. Prepaying principal on a fixed-rate mortgage shortens the term of the mortgage but the payment stays the same.
Conversely, recasting a mortgage with a lump-sum principal payment lowers the principal and interest payment but leaves the term intact with the same payoff date.
The interest rate on the mortgage will stay the same regardless. Prepaying principal can be done at any time but may not be applied until the next payment date. Recasting cannot be done within the first 90-days of a mortgage.
Prepaying principal is like driving faster on a trip to a specific destination to get you there sooner. Recasting/Re-amortization gets you to the destination at the same estimated time of arrival but using less fuel.
Most loans allow you to pre-pay principal, but recasting is not allowed on FHA, VA, and GNMA. If you have a conventional loan, check with your lender to see if it is possible.
Contact your mortgage servicer for specific information on pre-paying or recasting your mortgage before acting.
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Tom Johnson is an experienced and award-winning Realtor with Your Castle Real Estate serving the Great Denver/Aurora Metro Area and Buckley Space Force Base.
As a Residential Specialist and VA Loan Expert he is happy to assist you in purchasing a new home, selling your current home, or simply answering your real estate questions.
Tom Johnson, Realtor – MBA, CRS, MRP
Call or text to (303) 856-6185 or email: tomjohnson@yourcastle.org