You make a lump sum payment toward your principal. The lender recalculates your monthly payment using the original interest rate and remaining term but with the lower principal balance. Your payment decreases immediately and you keep your existing rate and loan terms.
Detailed Math Example
Original loan: $300,000 at 6.5% for 30 years, payment $1,897. After 5 years you owe $280,000. You make a $50,000 lump sum payment leaving $230,000. New payment on $230,000 at 6.5% with 25 years remaining: approximately $1,551. You save $346 per month.
vs Refinancing
Recasting costs $200-$500 with no credit check no appraisal no income verification. Refinancing costs 2%-5% of loan amount and requires full qualification. If your current rate is below market recasting is clearly better. If rates have dropped refinancing may be worth the cost but recasting is still cheaper.
When It Makes Sense
Recast after receiving a large bonus inheritance or home equity from selling a previous home. Use it when you want to lower your monthly payment without going through the refinance process. It is ideal when current rates are higher than your existing rate.
How to Request a Recast
Contact your loan servicer and ask if they allow recasting. Not all lenders do. Confirm the minimum lump sum requirement the fee and the time frame. Send the lump sum payment and the servicer will process the recast typically within 30 days.
Limitations
Not all loan types are eligible. FHA and VA loans have specific rules. Conventional loans held by Fannie Mae or Freddie Mac allow recasting but your servicers guidelines apply. Government-backed loans may have stricter requirements. You can typically only recast once per year on the same loan.