What is a Mortgage Recast

The Power of a Mortgage Recast: Buying Your New Home Before Selling the Current One

In today’s competitive housing market, many buyers face a common dilemma: they want to purchase a new home but haven’t yet sold their current one. What if there was a way to buy your new home now, even without selling your existing property first, and then use the proceeds from your home sale to lower your monthly payments later? Enter the mortgage recast—a flexible option that could be the perfect solution for homebuyers in this situation.

What Is a Mortgage Recast?

A mortgage recast is a process that allows you to apply a lump-sum payment toward your mortgage principal after closing, which recalculates (or "recasts") your monthly payments based on the reduced loan balance. This strategy is especially valuable for homeowners who buy a new home before selling their existing one. Unlike refinancing, a recast does not require a full re-qualification, new loan terms, or closing costs, making it a simpler and more cost-effective way to reduce your monthly payments.

Mortgage Brokers Marcel Deitrich and Jan Deitrich have decades of lending experience helping their clients find financing solutions.

Benefits of a Mortgage Recast for Homebuyers

Here’s why using a mortgage recast can be a game-changer if you’re planning to buy a new home before selling your current one:

1. Buy Your New Home Now, Without Waiting to Sell

A common challenge for many homeowners is the timing of buying a new home while still owning the current one. With a mortgage recast, you can move quickly when you find the perfect property, even if your existing home hasn't sold yet. You can secure your new home with a smaller down payment and then use the proceeds from your current home’s sale to lower the principal balance on your new mortgage later.

Example Scenario:

• You find your dream home for $500,000 but haven’t sold your existing home yet.

• You purchase the new property with a 10% down payment ($50,000).

• After selling your current home, you receive $150,000 in net proceeds.

• You apply that $150,000 toward your new mortgage balance and request a recast.

This recast will lower your loan amount, reduce your monthly payments significantly, and save you thousands in interest over the life of the loan.

2. Lower Monthly Payments Without Refinancing

One of the biggest benefits of a mortgage recast is the ability to lower your monthly payment without the hassle and costs associated with refinancing. Since the loan's term and interest rate remain the same, you avoid the need for re-qualification or paying additional closing costs, which can be significant.

Key Benefits Over Refinancing:

• No Need to Re-Qualify: You don’t need to undergo the approval process again, which means no new credit checks or income verification.

• Minimal Fees: The fee for a mortgage recast is usually minimal (typically between $150 to $500), which is much lower than the costs associated with refinancing.

• Same Interest Rate: You keep your existing interest rate, which can be advantageous if rates have risen since you first locked in your mortgage.

3. Interest Savings Over the Life of the Loan

By making a large lump-sum payment on your principal and reducing the outstanding loan balance through a recast, you also reduce the amount of interest you’ll pay over the life of the loan. This means significant long-term savings, even though your interest rate remains the same.

Example of Savings: Let’s say your original mortgage payment was based on a $450,000 loan. After recasting with a $150,000 lump-sum payment, your new balance is $300,000. The recast recalculates your monthly payment based on this reduced amount, potentially saving you thousands in interest payments over time.

4. Flexibility to Manage Cash Flow

One of the underrated advantages of a mortgage recast is its flexibility. You can choose to recast when it makes the most sense for you financially, allowing you to manage your cash flow effectively. For example, if you're using the proceeds from your home sale or another financial windfall, you can time the recast to maximize your savings.

How to Get Started with a Mortgage Recast

Here’s how to set yourself up for success if you’re considering this strategy:

1. Talk to Your Lender: Not all lenders offer recasting as an option, so it's crucial to confirm that your new mortgage allows for this feature.

2. Understand the Requirements: Most lenders require a minimum lump-sum payment to be eligible for a recast, often between $5,000 and $10,000.

3. Plan the Timing: Consider the best time to recast based on when you expect to receive the proceeds from your home sale.

Is a Mortgage Recast Right for You?

A mortgage recast is an ideal strategy if:

• You want to buy a new home before selling your existing one.

• You have a significant amount of cash coming in, such as from the sale of a property.

• You prefer to lower your monthly payments without the hassle of refinancing.

Final Thoughts

A mortgage recast offers a flexible, cost-effective way to secure your new home now and adjust your mortgage payments later. This approach allows you to take advantage of the current housing market while also planning for a smoother financial transition once your existing home is sold. If you’re in the market for a new home and expect a cash influx soon, ask your lender about the possibility of a recast to make your mortgage work even better for you.

With this strategy in hand, you can move into your dream home now and enjoy lower payments after the sale of your current property, all without the extra costs and complications of refinancing.

Marcel Deitrich

Texas Loan Haus
972.672.3246
[email protected]
NMLS# 231135