ts

• What Is a Mortgage Recast?
• How a Mortgage Recast Works
• Mortgage Recast vs. Refinancing
• Mortgages That May Be Recast
• Example
• FAQs
• The Bottom Line

• Personal Finance
• Mortgage

Mortgage Recast: What It Is, How It Works

By 

Julia Kagan

Updated March 31, 2025

Reviewed by 

Michael J Boyle

Fact checked by 

Suzanne Kvilhaug

What Is a Mortgage Recast?

A mortgage recast, also called a loan recast, is a feature of some types of mortgages where the remaining monthly payments are recalculated based on a new amortization schedule. During a mortgage recast, the borrower pays a large sum toward their principal, and their mortgage is then recalculated based on the new, lower balance outstanding.

Some mortgages have a scheduled recast date, which is the date when the lender will calculate a new amortization schedule based on the mortgage’s remaining principal balance and term.

Key Takeaways

• A recast occurs when a borrower pays a large sum toward their mortgage’s principal, and the lender recalculates the loan based on the new balance.
• When the lender recalculates the loan, they will create a new amortization schedule, which is a table of loan payments showing the principal and interest that comprises each payment until the loan is paid in full.
• The main benefit to the borrower of recasting a mortgage is the opportunity to reduce monthly payments.
• Negative amortization loans or option adjustable-rate mortgages (option ARM) frequently have a mortgage recast clause as part of the loan contract.

How a Mortgage Recast Works

For the borrower, the primary benefit of recasting a mortgage is to reduce monthly payments. Often, a mortgage lender will reduce the term of a loan if extra principal payments are made but maintain the same fixed monthly amount due—simply by increasing the principal amount and reducing the interest portion of the payment.

Recasting can lower the amount of interest the borrower will pay over the life of the loan if a sufficiently large principal payment is made, reducing both the interest and principal remaining on the loan’s new monthly payments.

Mortgage Recast vs. Refinancing

A mortgage recast can be a more comfortable option than refinancing. With a refinance, you replace your current mortgage with a new mortgage loan, which can be costly and depends on your credit standing. A mortgage recast does not involve a credit check and continues with the original mortgage.

On the other hand, refinancing a mortgage means paying off the existing loan and replacing it with a new one. Reasons why homeowners refinance include:

1. The opportunity to obtain a lower interest rate.
2. To shorten the term of their mortgage.
3. The desire to convert from an adjustable-rate mortgage (ARM) to a fixed-rate mortgage or vice versa.
4. An opportunity to tap into a home’s equity to finance a large purchase.
5. To consolidate debt.

Important

Unlike refinancing a mortgage, recasting a mortgage won’t lower the interest rate on your mortgage.1

Types of Mortgages That May Be Recast

Negative Amortization Loans

Mortgage recasting can be written into the loan terms and is associated with a negative amortization loan. A negatively amortizing loan has a payment structure that allows for a scheduled payment that is less than the loan’s interest charge.

When a payment is less than the interest charge at the time, it creates deferred interest. The amount of deferred interest created is added to the loan’s principal balance, leading to a situation where the principal owed increases over time instead of decreasing. Due to this increasing principal, negative amortization mortgages require that the loan is recast at some point so that it will be paid off by the end of its scheduled term. 

Negative amortization mortgages also sometimes have triggers that might cause an unscheduled recast to occur. This may kick in, for example, if the loan’s principal balance reaches a set limit through negative amortization.

Option Adjustable-Rate Mortgages (Option ARM)

Negative amortization mortgages are also known as payment option adjustable-rate mortgages (Option ARM). These mortgages give borrowers options that include paying all of the principal and interest or paying only some of the interest.

While the choices available with an option ARM allow for more flexibility on payments, the borrower could easily end up with more long-term debt than before. As with other adjustable-rate mortgages (ARMs), there is the possibility of interest rates changing drastically and rapidly based on the market.2

Example of a Mortgage Recast

Even if a mortgage does not include a recast option, you can approach your lender to see if a mortgage recast will benefit you and lower your monthly payments. By paying a lump sum and recasting your mortgage, you can reduce your housing costs. By contrast, if you submit a lump sum without recasting, you lower your balance, but your monthly payments will remain the same.

Let’s say you have a $500,000, 30-year fixed-rate mortgage with a 4% interest rate. Your combined interest and principal payment would be a little under $2,400 per month in terms of principal and interest.

After ten years, you receive a windfall sum of $50,000. If you decide to use that lump sum to pay down the mortgage without recasting it, you would continue to pay $2,400 a month, but the length of the loan would become about four years shorter, as your lump sum effectively pays down principal as if you were making extra payments.

On the other hand, if you recast the loan over the remaining 20 years of the mortgage, the monthly principal and interest payment would be around $2,080.

Calculate Your Monthly Payment

Your monthly mortgage payment will depend on your home price, down payment, loan term, property taxes, homeowners insurance, and interest rate on the loan (which is highly dependent on your credit score). Use the inputs below to get a sense of what your monthly mortgage payment could end up being.Enter Home Price

$Enter Down Payment

$

%Select Loan Term

30 years20 years15 years10 yearsEnter APROr Use Credit Score For Estimate

%

Or

Your Credit Score760-850700-759680-699660-679640-659620-639

+ More Options

Monthly Payment

$2,649.04/monthfor 30 yearsMonthly Payment$2,649.05

Principal & Interest

$2,264.38

Property Taxes

$256.67

Homeowners Insurance

$128.00

Mortgage Size$352,000.00

Mortgage Interest*$463,176.16

Total Mortgage Paid*$815,176.16

*Assuming a fixed interest rate. A variable rate could give you a lower upfront rate. To understand more click here.Expand

What Is a Mortgage Recast?

A mortgage recast is a feature of some mortgages that allows you to restructure your remaining monthly payments according to a new amortization schedule, thereby lowering your monthly payments.

What Are the Disadvantages of Recasting a Mortgage?

There are a few drawbacks. Namely, not all loans are eligible for recasting. Plus, you may be charged fees for the process. Keep in mind that you won’t shorten the length of your mortgage either.

What Type of Loans Are Eligible for a Recast?

You can only recast conventional loans, since FHA, USDA, and VA loans aren’t eligible.

The Bottom Line

If you’ve come into a large sum of money and want to pay a large portion of your mortgage principal, you might consider recasting the mortgage. While the length of the loan won’t decrease, you’ll have significantly lower monthly mortgage payments. Keep in mind that recasting won’t change your interest rate, however. So, if rates have fallen since you took out your mortgage, you might want to weigh the benefits of refinancing instead.

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