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Mortgage Recast vs. Refinance

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What’s the difference between recasting a loan and refinancing? In both cases you can end up with a different (ideally lower) monthly payment. However, they’re not the same.

When you refinance a loan, you pay it off. To be more precise, your new lender pays the old lender. You have to apply and qualify for a new loan, so you’ll need the income and credit to qualify. You may also have to pay fees or closing costs. Your refinanced loan probably has a new interest rate and a lower balance than your original loan.

Recasting is slightly different. When your loan is recast, you work with your existing lender. They’ll run a calculation to figure out what your new payment will be based on new information. For example, you may prepay a large portion of your mortgage and ask for a lower monthly payment based on your lower loan balance. Do some homework before you recast or refinance. First, check with your lender to see if recasting is allowed and how much it will cost. Not everybody offers the service.

You should also investigate alternatives like making extra payments above and beyond your required payment. Refinancing may mean you have more years to repay - and you’ll pay more in interest even though your monthly payment goes down. Run some numbers with a loan amortization calculator or spreadsheet.

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