A Low Cost Alternative to Refinancing

January 19, 2011 (Shirley Allen)
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Wouldn’t it be great if you ran into some money and you could take that money and make a lump sum payment towards your mortgage and then have your mortgage reset according to the original interest rate and loan terms?

Well for some, they can! A little known strategy, called ”re-casting,” or ”re-amortization,” is available through some mortgage lenders and servicers. 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.

Few, if any, lenders advertise recasting and they aren’t obligated to recast mortgages but according to Alan Rosenbaum, the founder and chief executive of the Guardhill Financial Corporation in New York, ”They are trying to become more customer-service-oriented, and they will do it on a case-by-case basis.”

Here’s one scenario: $230,449 is left on a 30-year fixed rate loan for a $300,000 mortgage taken out at 7.93 percent in 1995. The borrower pays $20,000 toward the principal and asks the lender to re-amortize their payments over the remaining 15 years of the loan. The monthly payment then drops by $52, from $2,187 to $2,135 per month. ($100,000 toward the lump sum would save $730 a month.)

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 and some lenders may require a minimum lump sum payment.

Certain types of mortgages, for example interest-only and adjustable-rate loans, usually aren’t eligible. The borrower will also need to have been current with all mortgage payments to qualify.

So if you come across some windfall cash or maybe you’re going to get a big income tax refund, put it to use in a way that can save you even more down the road!

Tags: mortgage reset, interest rate, loan terms, mortgage lenders, mortgage servicers, lenders, borrowers, re-casting, re-amortization