Put a lump sum toward your mortgage and see the lower payment a recast gives you, the interest it saves, what happens if you keep paying the old amount, and whether a refinance would beat it.
Your mortgage today
$
%
months
The recast
$
$
Compare a refinance
%
$
After the recast
New monthly payment (principal and interest)
$0
Lower payment each month
$0
Current payment—
Balance after the lump sum—
Interest left with no lump sum—
Interest left after the recast—
Interest saved by recasting, minus the fee—
Keep paying the old amount: paid off in—
Keep paying the old amount: interest saved—
Refinance payment instead—
Refinance: interest plus closing costs—
Refinance vs. recast, total cost—
Interest you still payIncluding the recast fee or refinance costsHow this is calculated
Current payment: M = P × r(1+r)n ÷ ((1+r)n − 1) on today's balance over the payments left. After the recast: the same formula on the balance minus the lump sum, same rate, same payments left (Fannie Mae: principal and interest only).
Interest left = payment × payments left − balance. Interest saved by recasting = interest left today − interest left after the recast − the recast fee.
Keep paying the old amount: the old payment is applied to the lower balance each month until it is paid off. Refinance: the lower balance amortized at the refinance rate and term, plus closing costs.
In a recast, you pay a large amount toward principal and your servicer recalculates the monthly payment on the lower balance. Fannie Mae's loan delivery guidance describes it as a payment "recalculated over the remaining loan term based on the new outstanding balance", and its servicing job aid says the recast reduces "the P&I payment only", using "the current interest rate and remaining loan term". Your rate and payoff date stay the same; only principal and interest drop. Escrow for taxes and insurance does not change.
A recast is optional for the servicer, not a right. Each servicer sets whether it offers one, the minimum lump sum and the fee, and not every loan program allows it, so ask before you send the money. Check your note for a prepayment penalty too: the CFPB defines it as "a fee that some lenders charge if you pay off all or part of your mortgage early." A refinance is a new loan at a new rate with new closing costs, so it only beats a recast when the new rate is clearly lower than yours.
Common questions
What does a mortgage recast do?
You pay a lump sum toward principal and your servicer recalculates the payment on the lower balance over the same remaining term at the same rate. On a $300,000 balance at 6.5% with 25 years left, a $50,000 lump sum cuts principal and interest from $2,026 to $1,688 a month.
Is it better to recast or just pay extra?
Paying the lump sum and keeping the old payment saves more interest because the loan ends sooner: in the example, $143,646 of interest saved and 95 fewer payments, vs. $51,281 saved with a recast. A recast trades that for a lower required payment. After a recast you can still pay the old amount voluntarily, which gets the same result with more flexibility.
Recast or refinance?
If your current rate is at or below today's rates, a recast usually wins because you keep your rate and pay a small fee instead of closing costs. A refinance can win when the new rate is clearly lower than yours. Compare both in this calculator.
Does a recast remove PMI?
Not by itself. But a big principal payment can bring your balance to 80% of the original value sooner, and then you can ask your servicer in writing to cancel PMI. Check the date in the PMI removal date calculator.