Recasting a mortgage: When it makes sense and how to do it

Mortgages account for the largest share of household debt in the U.S., with the average borrower owing $252,505. Decreasing that number without refinancing, adjusting the interest rate, or taking out a new loan may sound too good to be true. 

Yet, that’s exactly what mortgage recasting is designed to achieve.

This guide walks through what a mortgage recast is, outlines the pros and cons, and helps you decide when recasting may be the right choice. 

What’s a mortgage recast?

A mortgage recast enables homeowners to lower their monthly payments without going through a refinance. If you choose this route, your lender will expect your mortgage to be in good standing with a record of on-time payments. 

It’s worth noting that not all loan types, such as FHA, VA, or USDA, are eligible. To confirm whether yours qualifies, check the loan type and ask your lender. 

How to recast a mortgage

Recasting your mortgage is usually simple, but it does involve a few steps. Here’s what the process often looks like:

— Contact your lender: Start by reaching out to confirm that your loan qualifies for a recast and learn about their specific requirements.

— Make a lump-sum payment: Apply the agreed-upon amount directly to your mortgage principal. This may come from sources like savings, a bonus, or home-sale proceeds.

— Request the recast and pay the fee: Ask your lender to reamortize the loan; you’ll need to cover a small administrative charge, usually only a few hundred dollars.

— Receive your new payment schedule: Once processed, your lender provides an updated amortization plan showing your reduced monthly payments.

How to calculate a mortgage recast

If you request a mortgage recast, your lender will create a new amortization schedule for you. Still, it helps to understand how the math works. The easiest way is to use a recast calculator, but you can also figure it out manually. 

Start by deciding when you’ll make the lump-sum payment that reduces your loan balance. Lenders typically ask for $5,000 to $10,000, though some also require a minimum amount of equity. Next, recalculate, or reamortize, your mortgage by spreading the remaining debt over the years left on the term. This adjustment lowers your monthly bill while keeping your interest rate and payoff date unchanged.

Let’s say you took out a 30-year mortgage five years ago at a 4% interest rate and still owe $300,000. If you make a $60,000 lump-sum installment, your new balance drops to $240,000. Your lender then recalculates the loan by amortizing the reduced balance over the 25 years left. This decreases your monthly payment from $1,580 to roughly $1,280.

When is recasting a mortgage a good idea?

Recasting your mortgage can make sense in specific situations, especially when you suddenly have funds available. Common scenarios where recasting can be a smart move include:

— Applying an inheritance or windfall to your mortgage: Using unexpected funds to reduce your balance lowers your monthly payments and eases long-term costs.

— Directing a work bonus toward your loan: Applying a large bonus into your mortgage helps cut interest charges and builds long-term savings.

— Putting home-sale proceeds toward your balance: When you sell a different property, you can use the profits to pay down your mortgage.

...in as little as 3 minutes – no credit impact

Pros and cons of recasting your mortgage

Like any financial move, mortgage recasting comes with both advantages and drawbacks to consider before deciding if it’s right for you. Here’s a closer look. 

Benefits of recasting a mortgage

— Reduce monthly payments: With a recast, your lender spreads the decreased loan amount over the original term, giving you smaller payments without the expense or paperwork of refinancing.

— Streamline the process: A recast usually just involves making the lump-sum payment and signing a recast agreement, after which you receive an updated amortization schedule. Unlike refinancing, you avoid credit checks, income verification, and full appraisals.

— Maintain your existing interest rate: Your original interest rate stays intact since you’re not refinancing the loan. This is especially valuable if you locked in favorable terms years ago because you keep that advantage while still lowering your payments.

— Spend less on admin fees than refinancing: Most lenders charge only a modest flat fee — often just a few hundred dollars — to complete a recast. By contrast, refinancing often adds thousands in closing costs that go to the lender instead of reducing your principal.

— Stay on your original loan term: Refinancing often restarts the clock with a new 15 or 30-year loan. A recast keeps your payoff date the same, so you stay on track to settle your mortgage as planned.

Drawbacks of recasting a mortgage

— Make a large one-time payment: To qualify for a recast, you contribute a substantial lump sum — commonly tens of thousands of dollars — toward your loan balance. This makes recasting an option only if you have extra savings from something like an inheritance, a raise, or proceeds from another property sale.

— Exclude certain loan types: FHA, VA, and USDA loans typically don’t allow recasting, so borrowers with these government-backed mortgages need to consider refinancing instead.

— Face lender limitations: Even when your loan type permits recasting, some lenders simply don’t provide the option. So, you should confirm availability with your servicer before moving forward.

— Tie up extra cash in home equity: Once you make the one-time payment, that money is tied up in your property. While it reduces your debt, it becomes harder to access in an emergency without taking out a home equity loan or line of credit.

Mortgage recasting alternatives

If recasting isn’t the right fit, several other options can help you manage your mortgage more effectively. Let’s take a look at a few options.

Mortgage recasting vs. refinancing

When homeowners look for ways to shrink their monthly mortgage payments, refinancing is often the first option that comes to mind. Taking this path allows you to secure a lower rate, reduce your monthly payment, and select a new loan term. 

In addition to lowering your monthly payments, refinancing can provide fast access to funds through a cash-out option and may also let you remove private mortgage insurance.

Better makes refinancing simple with a fully online process — whether you’re looking to reduce your monthly payments, change your loan terms, or tap into your home equity. Compare the different types of refinance options, calculate the true costs, and review today’s rates to see which option aligns best with your goals.

Mortgage recasting vs. making extra payments

Putting extra money toward your mortgage is another option, but it works differently from a recast. Additional payments often go toward the principal, which shortens your loan term and reduces the total interest you’ll pay over time. 

What they don’t do is lower your required monthly payment — unless you specifically ask your lender to recast.

Some homeowners prefer this route because it helps them become debt-free faster. Others value the flexibility of a smaller payment each month, which is exactly what a recast offers. Ultimately, the choice comes down to your priorities: paying off your loan sooner or freeing up room in your budget right now. 

Keep in mind that some lenders charge penalties for paying off a loan early, so it’s important to review your terms before making extra payments.

...in as little as 3 minutes – no credit impact

Lower your mortgage costs with Better 

Recasting your mortgage can lower your monthly payments without the cost or complexity of refinancing. For homeowners who have set money aside, it offers a practical way to trim housing expenses while keeping current loan terms. 

If you don’t have the extra cash for a recast but still want to lower your monthly mortgage payments, refinancing with Better may be the right move. Our home advisors can walk you through which option makes sense for your situation. Since they don’t earn commissions, their guidance focuses on your financial goals—not on making a sale.

Ready to see the impact for yourself? Use the mortgage calculator to estimate your payments and start your pre-approval in as little as three minutes.

...in as little as 3 minutes – no credit impact

FAQ

What are the differences between recasting and refinancing a mortgage?

Recasting keeps your existing loan but lowers payments after a lump-sum contribution. Refinancing replaces your loan entirely, usually to secure a new rate or term.

Should you recast your mortgage instead of refinancing?

Choose recasting if your main goal is to reduce monthly payments with minimal cost and paperwork. Opt for refinancing if you want to change your interest rate, loan type, or repayment timeline.