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Decided to payoff my mortgage.
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Struggling to see downsides (beyond closing costs of the recast). You can keep paying the higher amount (to continue original loan payoff timeline), but you have a reduced fix cost base if you lose your job. Seems like a nice de-risk.
Am I missing something?
Mentor
If we assume the rate doesn’t change and closing costs are minimal, then yes, it’s no downside. You can always make higher payments if it makes sense to do so, but you will have the flexibility to make lower payments too.
The lower the rate the better recasting will be. For example if rate is 3% this is a fantastic deal.
At 7%, not so much
I’ve recasted twice in the past two years - feels great to reduce my highest fixed cost. I also prepay every month with the intention of paying off my loan early. You do not restart the term of your loan for a recast (as Deloitte 1 continues to claim). There’s no downside other than the nominal fee and there are plenty of upsides. Pros and cons relative to general prepayments are pretty well outlined online.
Thanks for asking this question. I had no idea this was an option and think we will benefit a lot from recasting!
Coach
Is rate staying the same? They are just stretching out the term to reduce payments? Seems to have clear advantages and disadvantages. I like have current cash flow and you can always make more payments. Are they charging you points / fees for it? Or expenses?
Coach
Sounds good to me. You do it to be optionality / liquidity. You can’t assume the option is always there. If rate environment changes or you lose your job, would they do the same?
You restart 30 years of interest payments. Not a good plan unless you really need the cash flow.
Thanks D1 and K1. Appreciate the responses!
Disadvantages in the near-term are the recast fees.
Disadvantages in the long-term are, if you keep the loan for the full term, paying more dollars in interest (rather than repaying the loan ahead of schedule with the higher payment).
Those disadvantages might be outweighed if, for some reason, you want to keep the mortgage around a long time.
In most cases, probably nay..... Keep paying til it's gone.
Yes fee is 250. No other cost.
I would just encourage you to continue paying the higher amount even if you don't have to. A lot of people see that their bill is cut and stop paying off as aggressively, which can mean more interest in the long-term.
I'm seeing quite a bit of misinformation in this thread.
1) Recast simply lowers the monthly payment over the remaining term of an existing loan. Timing will make a difference with greater benefit realized earlier in the lifespan of the mortgage.
2) Primary benefit is for the flexibility with the option to pay less when needed. If that's your sole objective, this is the best option.
3) Recast also leads to lower interest, both immediate and long term, but will not payoff the loan faster. Monthly principal acceleration will still be needed as part of the plan. If prepay is your main goal, lump sum curtailment without recast is a better solution. It saves more interest over the long term and ensures early payoff.
4) Recast will NOT restart interest from the beginning. Others may be confusing with a rate term refi which does lead to a new amortization. They are not the same thing, so ignore that mistaken advice.
5) You can confirm yourself by comparing a before and after amortization schedule. From the point lump sum payment is applied. montly P&I amounts will decrease over the remaining months in the schedule. Make sure you are looking at a full view breaking out interest and principal. That way you can see the decreased interest allocation vs increased principal. If changes are significant enough (and it alogns with your strategy) it will be worthwhile.
Good luck!
Uh nay
It would depend on what your specific goal with a recast is. Can be good flexibility and ease the monthly cash flow. However , a lower payment might mean you slow down on the principal, and it doesn’t change the payoff date.