Mortgage Rates Just Hit 6.95%. If You Want a Lower Payment, Ask Your Servicer About a Recast.
The 30 year fixed rate averaged 6.95 percent in Freddie Mac's survey on September 17, a 19 month high. If you were hoping to refinance your way to a smaller monthly payment this fall, that door just got heavier. There is a quieter option most homeowners have never heard of, and it costs a few hundred dollars instead of a few thousand. It is called a mortgage recast.
A recast works like this. You make a lump sum payment toward principal. Your servicer then re-amortizes the smaller balance over the time you have left on the loan, at the same interest rate you already have. The rate does not change. The payoff date does not change. The monthly payment drops, because it is now calculated on less money. There is no appraisal, no credit check, and no closing costs. Chase, to take one large servicer, describes the paperwork as signing a recast agreement. Fees at most lenders run roughly $150 to $500.
Who this is actually for
The clearest case is someone who bought a new house before selling the old one. You closed in the spring on a $600,000 mortgage at 6.75 percent, your principal and interest is about $3,890 a month, and the old house finally sold in August. If you put $150,000 of that sale toward principal and recast, the payment falls to about $2,920. That is roughly $975 a month, or about $11,700 a year, for a fee smaller than one month's electric bill. You could get a lower payment by refinancing if rates fall, but you would pay closing costs to do it and you would be betting on the rate market.
The second case is the person with a 3 percent loan from 2021 who got a bonus, an inheritance, or an equity payout and would like breathing room without giving up that rate. On a $500,000 loan taken out five years ago, a $75,000 principal payment and a recast drops the monthly payment by about $355. Refinancing the same balance today at 6.95 percent would raise the payment. The recast keeps the rate you can never get back.
The catches
FHA, VA, and USDA loans are not eligible. Recasting is generally a conventional loan option, and whether a jumbo loan qualifies depends on the lender holding it. Many servicers set a minimum lump sum, often $5,000 to $10,000, though some, including Chase, say they have no minimum. Your loan needs to be current. And a recast only lowers principal and interest, so if your payment went up because of escrow, a recast will not touch that part.
It is also worth being clear about the trade. If you make a large principal payment and do not recast, your payment stays the same and the loan pays off years early, saving more interest in total. Recasting gives up some of that interest savings in exchange for monthly cash flow. Neither is wrong. If the lump sum came from selling your last house and your budget is tight carrying the new one, cash flow is usually the right answer. If you are comfortable with the payment, prepaying without recasting saves more.
The move
Call your servicer and ask three questions. Is my loan eligible for a recast? What is the minimum principal payment? What is the fee? Get the answers in writing, then send the lump sum and the recast request together, since some servicers want the payment applied first and the request filed within a set window. Then check your next statement. The new payment should show up within one or two billing cycles, and if it does not, call again. Servicers are not in the habit of volunteering this one.
