Mortgage Recast Calculator
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A mortgage recast, also known as a loan recast or re-amortization, is a process in which a borrower makes a large, lump-sum payment towards the principal balance of their mortgage, resulting in the lender recalculating the remaining loan balance and adjusting the monthly payment amount. The new monthly payments are spread over the remaining term of the mortgage.
Here's how a mortgage recast typically works:
- Lump-Sum Payment: The borrower makes a substantial extra payment towards the principal balance of the mortgage. This payment is usually more than the amount of the regular monthly payment.
- Recalculation: After receiving the lump-sum payment, the lender recalculates the remaining principal balance by deducting the lump-sum payment from the original loan amount. This new balance is then spread over the remaining term of the loan.
- Adjusted Monthly Payments: With the new loan balance and the remaining term, the lender determines a new monthly payment amount that will ensure the mortgage is paid off in full by the end of the original term.
It's important to note that a mortgage recast is different from a mortgage refinance. In a refinance, the borrower obtains a new loan with different terms to replace the existing mortgage. On the other hand, a recast does not involve changing the interest rate or the loan term; it only adjusts the monthly payment amount based on the reduced principal balance.
Using a mortgage recast calculator can help you estimate if you should recast your mortgage to lower your future mortgage payments and understand how different variables can impact your monthly payment over time costs. Using a mortgage recast calculator can be a valuable tool for anyone looking to lower their monthly mortgage payment and help you make informed decisions about your finances.
- Principal: This is the amount of money you borrow to purchase a property. You repay the principal over the term of the mortgage, typically 15 to 30 years or possible a different term length.
- Interest: This is the cost of borrowing money, and it is charged by the lender as a percentage of the principal. The interest rate can be fixed or variable, and it can have a significant impact on your monthly mortgage payments and overall borrowing costs.
- Taxes: Property taxes are assessed by local governments and can be paid separately or included in your monthly mortgage payment. The tax amount is usually a percentage of the assessed value of the property.
- Insurance: Mortgage lenders typically require borrowers to have homeowners insurance to protect the property against damage or loss. Depending on the location of the property, flood insurance may also be required.
- Private Mortgage Insurance (PMI): If your down payment is less than 20% of the purchase price of the property, you may be required to pay for PMI. This is an insurance policy that protects the lender in case you default on the mortgage.
- Escrow Account: An escrow account is an account managed by the lender that holds funds for property taxes, insurance, and PMI (if required). The lender collects a portion of these expenses as part of your monthly mortgage payment and then pays them on your behalf when they are due.
Anything below 5% growth is considered a good mortgage interest rate. Below 3% is a great interest rate.
Generally, it is recommended that your monthly payment may not exceed 25% of your gross income. If your monthly housing payment is above 25%, it may become hard to pay all your bills each month.