Quick Answer — How Does a Mortgage Recast Work?
A recast applies a lump sum to your principal and then re-amortises the loan over the remaining term at the same interest rate. The rate does not change, the payoff date does not change, and there is no new loan — only the monthly payment falls, because a smaller balance is being spread over the same number of months.
The arithmetic is the ordinary amortisation formula run twice, before and after the lump sum:
- New Balance = Current Balance − Lump Sum
- New Payment = New Balance × [ r(1+r)ⁿ ] ÷ [ (1+r)ⁿ − 1 ], where r is the monthly rate and n is the months remaining
- Monthly Saving = Old Payment − New Payment
Worked example: a $320,000 balance at 6.5% with 312 months (26 years) left pays $2,127.74 a month. Put $50,000 against principal and re-amortise the remaining $270,000 over the same 312 months and the payment becomes $1,795.28 — a saving of $332.46 a month, or $3,989.51 a year.
Servicers typically charge a flat recast fee of roughly $150 to $500 and usually require a minimum lump sum in the $5,000 to $10,000 range, though some set it much higher. At a $300 fee, the example above recovers the cost in under one month of savings.