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Mortgage Recast
2 Plays5 minutes ago
In this engaging solo episode of the Uncommon Wealth Podcast, host Phillip Ramsey dives into the often-overlooked topic of mortgage recasting—an alternative financial strategy to consider in today's high-interest rate environment that can address a common concern among homeowners: increasing mortgage costs and potential strategies to alleviate them without refinancing.
Phillip unpacks the concept of mortgage recast, explaining how it allows homeowners to adjust their monthly payments by making a lump-sum payment towards the principal balance of their loan. By doing so, homeowners can maintain their current interest rate while benefitting from lower monthly payments. The episode is filled with valuable insights as Phillip discusses the conditions under which a mortgage recast makes sense, including the current economic climate with high-interest rates and stagnant housing markets. He explains the eligibility requirements and the pros and cons of choosing this option over refinancing. Listeners will find practical advice on deciding whether a mortgage recast is right for their financial situation.
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Transcript
Introduction to Uncommon Wealth Podcast
00:00:00
Speaker
Everyone dreams of living an uncommon life, and the best asset you have to achieve your dreams is you. Welcome to the Uncommon Wealth Podcast. We're going to introduce you to people who are living uncommonly. We're also going to give you some tools and strategies for building wealth and for pursuing an uncommon path that is uniquely right for you.
00:00:27
Speaker
Hello and welcome everybody to another episode of the uncommon wealth podcast where I'm your host, Phillip Ramsey. And today it's a solo cast.
Philip's Solo Episode and High-Interest Rates Discussion
00:00:34
Speaker
Holy cow. He's on it by himself. Hang on. This could get dicey. Usually I have a partner, usually Aaron, um but he is in the throes of it. He's doing some rebalancing. He's got a busy day. So I thought I would just jump on this thing and record my own solo cast, which honestly out of the man, 10 years we've been doing this or six years or whatever it was, I don't even know. The 200 and some episodes, I've never done a solo cast, that's a long one. So this shall be new for all of us, hang on. So the I guess the idea or concept that I wanted to bring up is just interest rates in general. And how do you maximize them? Because for a long time in our career, interest rates were going down. And so people would refinance their mortgage,
00:01:20
Speaker
and they would start getting a better payment they would start getting a lower payment and better interest rates so they wouldn't have to put as much money into the bank or give them one give the bank as much money and so now what do you do right interest rates are high everyone's locked into their mortgage usually they have like three percent i'm going to use that's kind of us personally and so it almost locks you into your house because as you You start thinking about maybe moving. You see a house that you might like. Well, the value of that house is a lot higher and the interest rate that you'll be paying if you were to mortgage that will be a lot higher. So your monthly payment goes up. Not super appealing. So what in the world do you do? And so the concept I wanted to talk to you about today is call it a recast or a mortgage recast.
Understanding Mortgage Recast
00:02:08
Speaker
What in the world is that?
00:02:10
Speaker
so I kind of wanted to go through that, why you would do it, what are the pros, what are the cons, but let's just first start by what is a mortgage recast. and A mortgage recast is when you make a lump sum payment towards the principal balance of your loan and then your lender will amortize your mortgage with a new lower balance.
00:02:33
Speaker
The reamortization in interest rate and repayment term remain the same, but you can lower your monthly payments because your principal amount went down. okay so In layman's terms, it means you keep the same interest rate as you currently have, but you just mortgage a lower balance.
00:02:51
Speaker
And a lot of times, and not all, I should probably preface this, not all mortgage companies that hold your mortgage will let you do this. So you gotta make sure that it does, but a lot of them do. And so what would you say is like, hey, if I had extra $10,000 lying around, you because that's normally the number, or sometimes it's a percentage of the lowest amount that you can kind of recast your mortgage, but you give the $10,000 and then it goes to your principal and then you then amortize it with the smaller number. So let me give you some real numbers. like Let's say you owe $200,000 on your house and your house is valued at, I don't know, it doesn't matter. Let's say you owe $200,000 on your house and then you put $10,000 down. Well, then you would re recast your mortgage at 190,000 at the 3%. So your monthly payment might go down to, or maybe $300, but the timeline and in in which you'll pay off your mortgage is still the same. You just pay less.
00:03:48
Speaker
an interest kind of cool. So it doesn't mean that you're locked into, I mean, you're still living there, but you can still kind of think about maybe getting a lower payment on your current mortgage by doing a recast.
When to Consider a Mortgage Recast?
00:04:01
Speaker
So who are who would consider doing a recast? So when you purchase a new home,
00:04:08
Speaker
and you haven't sold your old home, that's when you could do like a recast. So you might have a lump sum payment from your old house that comes in, then you could contact your bank and say, hey, I want to do a recast because now I have the proceeds from my old house and I roll it into my current mortgage, I just want to do a recast. A lot of times there might be fees involved with that, not as much as a closing cost, but there might be some fees. So something to think about.
00:04:33
Speaker
And then if you ever receive a large lump sum payment, now, sometimes if you've been paying on your mortgage for so long, you might be able to do a recast with just the value. So let's say you started a mortgage at 330,000, and now you're down to 240,000. You might be able to do a recast and just do the $240,000 and recast that. But that's something that's gonna be specific on the company that's holding your mortgage.
00:05:00
Speaker
Okay, so what's what's the difference um between a mortgage recast versus a principal payment? um Any kind of lump sum that you do, you want to make sure that it goes to principal, and then you would do the recast. So it requires you, to like I said, to get a large large payment towards your principal loan, and then you make an additional payments on your loan without recasting it. That is just like a which is kind of like the payments are the same. The difference between a recast is then your payments would then go down. So, something to think about.
Steps and Conditions for Mortgage Recasting
00:05:36
Speaker
Okay, how does a recast work? um And they can be specific by lenders, but in general, here are the steps. The homeowner makes a payment, ah you make a large lump sum payment, um like I said, usually it's $10,000, and then you
00:05:53
Speaker
You make sure that the money goes towards the loans principal balance and then it reduces your your ah monthly payment that you owe. The lender re-ameterizes your balance. Ameterization is a fixed payment schedule that includes both principal and interest. Once you make up the lump sum payment, the lender will adjust the repayment schedule to reflect your new monthly dues. But like I said, the timeline doesn't stop. Like the timeline doesn't move up. It's just like if you still have 20 years left, you still you have to pay on that for 20 years.
00:06:23
Speaker
um And then like I said, sometimes they will charge some charging fees. And then how soon can you do a recast mortgage? If you're do if you're thinking about doing a recast mortgage, the yeah then you can wait about two months before you can go and do that. So if you've had your mortgage for longer than two months, you normally can do that again if your lender says it's okay.
00:06:45
Speaker
And then the cool thing about if you qualify or not is if you have, this is kind of the bad news, if you have like a government-backed loan, like a FHA loan, a Federal Housing Administration loan, a USDA loan, United States Department of Agriculture, or a VA loan, usually you won't be able to do a recast. Some jumbo loans will let you do a recast. That's like a bigger mortgage.
00:07:12
Speaker
um like a higher number amount. And then you have to meet the principal reduction standards. So like like we talked about, like a $10,000, you have to have that. Now again, like I said, sometimes your lender will let you do it if you have a lot of, if you've paid down the mortgage a lot, you might be able to recast that as well.
00:07:30
Speaker
um And then lastly, um you have to satisfy the equity requirements. You have to have some kind of equity in your house, and then that's lender specific. And then um you must meet the lender's payment history requirements. So you have to be in good standing.
00:07:45
Speaker
So those are the kind of fun things.
Pros and Cons of Mortgage Recasting
00:07:47
Speaker
So here's the pros. Recasting is way less expensive than closing costs. There's no credit approval, appraisal requirements. You don't need a good credit score. ah You keep your current interest rates, which I feel like is like the biggest thing here. um And you can save on interest and lower your payments. So and not a bad gig.
00:08:06
Speaker
You can also apply your lump sum directly to your principal at this point. The cons is one, your lender might not be able to let you do it. ah you might not re You might not qualify for a recast.
00:08:19
Speaker
um you You need to make a minimum payment amount, so just be thinking like if you have some money in savings or you came into some money somehow, this would be some time to kind of maybe look into the recast. um And if you don't if you don't shorten your payment repayment term of your loan, I think that could be kind of good or bad, um but it still kind of goes out however much longer you have on the loan.
00:08:44
Speaker
And then you can't access your home's equity with the recasting. But if you had like a line of credit, I do still think that you could somehow work with some lenders and try to figure out how to use that to recast it.
00:08:57
Speaker
um You know, if you refinance your mortgage, interest rates are gonna go up. So I don't know if that's super exciting, but maybe the timeframe in which that you have the mortgage will change. So that's kind of the difference between refinancing and recasting. But especially now with interest rates so high, I just don't see a need of refinancing. I haven't heard of a lot of people like, hey, it's time for me to go refinance. Usually they get a home equity line of credit, like a HELOC on the equity of their house. That's usually kind of what they do.
00:09:28
Speaker
But if you do do a refinance, you can actually do a cash out refi, which you can get more money and get actual check for that and not have to pay interest on that actual, but it would just be in the mortgage. So there's something to think about. So how do you calculate your mortgage cost? You can call your lender if they let you do that. They'll help you kind of calculate, hey, what would this, this is a good deal or bad deal. Is it worth $100 extra you save a month? But as as I know, a lot of people right now are just hurting. They're just paycheck to paycheck. So this is maybe an idea that you can look into.
00:09:58
Speaker
um Yeah, so bottom line, I think a mortgage recast is something nice to even at least have the option to look into. And that's my, I guess, goal at this podcast is just try to give you tips and tricks in order to make your uncommon path, I guess, smoother and more exciting. So thank you so much just for listening. Again,
00:10:18
Speaker
I didn't want this to be too too long, but I didn't want it to be too short. But a mortgage recast is something to maybe look into if you're trying to figure out like how can we get a little bit lower monthly payment ah because refinancing is not your option at this point. So I hope you liked it. I enjoyed talking about it. And then if you have any questions, please feel free to reach out to me. My email is Philip, P-H-I-L-L-I-P, at uncommonwealth dot.com. And you can go to our website and schedule a time to talk as well. So thank you for listening. You've been talk listening to the Uncommon Wealth Podcast. I've been your host, Philip Ramsey. Until next time, go be uncommon.
00:11:04
Speaker
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