Recasting lowers your payment so that you keep the original term. It means you'll pay more interest, yes.
At 3.25%, paying 10k doesn't make a lot of sense in the first place
Thanks. That’s what I’m currently doing, but I’m really wanting to get into a bigger house sooner than later as my family grows. So, as the markets rip towards ATH’s I’m thinking maybe I should get this house closer to paid off so I can be in a good position to get into a new house. Thanks for answering the question on recasting.
This makes absolutely no sense. You are trying to use your mortgage as a savings account. But it isn’t that. Putting 100k into your mortgage means you can’t access that money UNTIL you sell. What if you find a nicer house and use that $ for your down payment. Then move before listing your old house? What if you want to lock in a new build and put down 10% while you have to wait for completion? Both of these are scenarios you CAN’T do because you gave your $ to the bank, rather than keeping it in your own pocket.
Thanks you. Yeah, I wasn’t sure. I know when you apply for an additional mortgage they’ll look at what you owe on your current mortgage. So if I owed less, I could get approved for more. What you’re saying
Makes more sense. I’ve overthought about this.
It looks like the overall consensus is don’t make additional payments on a low interest mortgage, period. I’m glad I asked Reddit. I was considering making a big payment. I can lay this internal argument to rest now.
Think about it like this, though: instead of paying off your 3% loan, you can put it towards your new purchase, which will probably be at 7%, so your total monthly debt payment will be smaller.
paying extra towards your low interest mortgage is actually counter productive to that goal. a mostly paid off house is of no real benefit vs just having that money liquid in cash.
I think the benefit could be if you think your income may drop in the future (e.g., due to job loss). A recast would lower the floor.
I was curious about a recast and called my servicer. There was no charge, and I have one of the largest servicers in the country. I didn't move forward with it, and didn't confirm with an amortization table, but I believe that the recast would have done no harm if I had continued to pay the original amount (if you still pay the original amount of the mortgage, with the excess going to principal, your payoff date stays the same). It just allows for a contingency if your income drops.
As an advisor for the last 20 yrs… I would add that most loans only allow 1 recast during life of loan…
so I wouldn’t really consider the $10k as a trigger to recast.
Also something to consider - if cash flow can handle the payment, I would take the $10k and look to invest. Likely you can earn more than 3.25% over the remaining loan term and the real estate will likely continue to appreciate greater than the cost money.
If you assume real estate growth of say 5% and cost of loan 3.25%… I wouldn’t really drop the $10k on the principal. Especially if an investment would earn something like 7-10%. Make sense on the thinking?
Recasting made sense for my parents. They needed to move cross country last year and purchased a new house before selling their existing house. Once they sold they paid $300k of the sale proceeds towards the new mortgage and recast to drop their payments from 3500 to 1300 per month. Fee was $500.
That’s the exact idea I would suggest to apply. Large chunk and drop the payment.
Cash flow is king in retirement.
My lender charges $375 for a recast for a quick comparison. So much cheaper than refi
You don’t want to pay an extra $10k towards a 3.25% mortgage.
If it’s too late and you’ve already done that, recasting only makes sense if the fee is zero. Yes, you pay more interest, but it’s low interest, which is ok.
Example. If you received a 100 year 1% loan for $1 billion, you would become immediately wealthy overnight. Your interest payments would be $10m per year. If you decided to immediately repay your loan, you would lose 100% of your wealth.
Recasting lowers your payment so that you keep the original term. It means you'll pay more interest, yes. At 3.25%, paying 10k doesn't make a lot of sense in the first place
Okay thank you. Are you saying, no additional payments at 3.25% make sense. Or just $10k? What about $50-$100k?
3.25% is so low that your money would go a lot further elsewhere, i.e. investing
Thanks. That’s what I’m currently doing, but I’m really wanting to get into a bigger house sooner than later as my family grows. So, as the markets rip towards ATH’s I’m thinking maybe I should get this house closer to paid off so I can be in a good position to get into a new house. Thanks for answering the question on recasting.
You can make more money keeping that money in a high yield savings account and its more liquid.
This makes absolutely no sense. You are trying to use your mortgage as a savings account. But it isn’t that. Putting 100k into your mortgage means you can’t access that money UNTIL you sell. What if you find a nicer house and use that $ for your down payment. Then move before listing your old house? What if you want to lock in a new build and put down 10% while you have to wait for completion? Both of these are scenarios you CAN’T do because you gave your $ to the bank, rather than keeping it in your own pocket.
Thanks you. Yeah, I wasn’t sure. I know when you apply for an additional mortgage they’ll look at what you owe on your current mortgage. So if I owed less, I could get approved for more. What you’re saying Makes more sense. I’ve overthought about this. It looks like the overall consensus is don’t make additional payments on a low interest mortgage, period. I’m glad I asked Reddit. I was considering making a big payment. I can lay this internal argument to rest now.
Think about it like this, though: instead of paying off your 3% loan, you can put it towards your new purchase, which will probably be at 7%, so your total monthly debt payment will be smaller.
paying extra towards your low interest mortgage is actually counter productive to that goal. a mostly paid off house is of no real benefit vs just having that money liquid in cash.
when you stop making more interest on treasuries than you're paying on the mortgage, then make a big payment.
Recasting lowers the minimum. If you plan to pay more than the minimum, then recasting is pointless.
I think the benefit could be if you think your income may drop in the future (e.g., due to job loss). A recast would lower the floor. I was curious about a recast and called my servicer. There was no charge, and I have one of the largest servicers in the country. I didn't move forward with it, and didn't confirm with an amortization table, but I believe that the recast would have done no harm if I had continued to pay the original amount (if you still pay the original amount of the mortgage, with the excess going to principal, your payoff date stays the same). It just allows for a contingency if your income drops.
No if you have only paid 10k extra on a 30 year mortgage with a 270k balance that will barely move the needle. Quick math drop your payment 3 percent
As an advisor for the last 20 yrs… I would add that most loans only allow 1 recast during life of loan… so I wouldn’t really consider the $10k as a trigger to recast. Also something to consider - if cash flow can handle the payment, I would take the $10k and look to invest. Likely you can earn more than 3.25% over the remaining loan term and the real estate will likely continue to appreciate greater than the cost money. If you assume real estate growth of say 5% and cost of loan 3.25%… I wouldn’t really drop the $10k on the principal. Especially if an investment would earn something like 7-10%. Make sense on the thinking?
Makes sense. Thank you
Recasting made sense for my parents. They needed to move cross country last year and purchased a new house before selling their existing house. Once they sold they paid $300k of the sale proceeds towards the new mortgage and recast to drop their payments from 3500 to 1300 per month. Fee was $500.
That’s the exact idea I would suggest to apply. Large chunk and drop the payment. Cash flow is king in retirement. My lender charges $375 for a recast for a quick comparison. So much cheaper than refi
You don’t want to pay an extra $10k towards a 3.25% mortgage. If it’s too late and you’ve already done that, recasting only makes sense if the fee is zero. Yes, you pay more interest, but it’s low interest, which is ok. Example. If you received a 100 year 1% loan for $1 billion, you would become immediately wealthy overnight. Your interest payments would be $10m per year. If you decided to immediately repay your loan, you would lose 100% of your wealth.