Recasting a mortgage simply means calling up your bank and asking them to re-calculate your mortgage payments after you’ve significantly pre-paid your loan balance more than required. It doesn’t cost anything to recast a mortgage, but you do need to pre-pay a certain amount of excess principal that varies by lender. Remember that nothing else changes after a recast, and your loan will still come due on the same date as before. However, your monthly payments will be lower and if you keep paying the new monthly payment, you’ll end up with a fully paid off loan by the time it comes due.
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Recasting a mortgage means re-amortizing an existing mortgage after the borrower has paid down principal in excess of what’s required. Essentially, if a borrower pre-pays a substantial amount of principal in a conventional, amortizing mortgage, he or she can ask the bank to re-calculate the monthly mortgage payments to reflect the lower remaining loan balance.
For example, let’s assume your mortgage had an original principal balance of $2 million and your monthly payments on the 30 year fixed mortgage was approximately $9,000 per month. However, you’ve aggressively paid down your mortgage in excess of what’s required over the past several years, and now only have a $600,000 balance remaining. Throughout this time however, you are still paying $9,000 per month in your mandatory mortgage payment. Even though you will be paying more in principal with every payment, you are still being contractually obligated to pay more than necessary for a $600,000 loan.
However, if you recast your mortgage over it’s remaining life, your monthly required mortgage payment might drop to as low as $2,000 to $3,000 per month. Nothing else about your loan has changed except for the calculation of your required monthly payments in order to pay off your mortgage in full once the tenor is up.
So in our example, let’s say you’ve only had the loan for 4 years. After you recast your mortgage, you’ll still have 26 years left on your mortgage, but your monthly payment of principal and interest will be re-calculated to reflect the dramatically smaller remaining balance. If you make this new monthly payment of approximately let’s say $2,500 a month for the next 26 years, your remaining balance will be paid off in full.
You should recast your mortgage only if you’ve paid down a substantial amount of principal, and you wish to lower your required monthly payments. This could be because you simply wish to lower your required payments each month so you have more flexibility with spending or saving, or it could be because you wish to have lower mandatory payments reflected in your credit report.
The latter is extremely important if you wish to refinance other debt or apply for new debt. In our previous example, let’s say you used to have a mortgage of $2 million with a $9,000 monthly payment which you’ve since paid off substantially. You won’t get credit from other lenders for paying off so much debt because they will see your mandatory monthly payments when they run your credit report. So if you wish to apply for another loan or simply refinance another property, the bank will be using your $9,000 a month payments when they calculate your debt-to-income ratio!
The only real downside to recasting your mortgage is the fact that you might not be as self-disciplined in paying off your mortgage early, if that was your original intention since you had paid down a significant amount of your original loan balance. Some people might want that high original mortgage payment to be mandatory so they can be forced to keep paying down significant amounts of their mortgage principal.
You might want to consider this if you have problems with saving or overspending. If you feel like you’ll just spend any excess money you have, then it might be a better idea to not recast your mortgage so you can be forced to keep paying down your mortgage, and thus building home equity!
Recasting a mortgage is easy. All you have to do is to call the mortgage department at your bank lender and ask to speak with a representative about recasting your mortgage. This is a rather administrative task that your mortgage banker (the one who helped you get the loan originally) usually won’t handle personally.
Once you’ve confirmed your identity and told the mortgage department that you’d like to recast your mortgage, they will put you on a brief hold to confirm your eligibility. Once your eligibility is confirmed, they will confirm your mailing address and typically mail you a recast mortgage agreement to sign. All owners will need to sign in front of a notary, and the signed documents must be mailed back to the bank by a certain date. Although recasting a mortgage usually takes a month or two to take effect, the mortgage department will usually be able to tell you over the phone on which next payment date the new payments will take effect.
Yes. Banks will have different requirements on how much principal you need to pay down in excess of what’s required through your monthly payments in order to be eligible to recast your mortgage. For example, some major banks in New York have told us that they require a minimum of $20,000 of additional loan principal to be pre-paid in order for a borrower to be eligible for a mortgage recast.
This makes sense because it takes additional work for the bank to calculate and process a recast, even if it is very convenient for the consumer. Remember that most major banks will not charge borrowers for doing a mortgage re-cast (yes it really is free), so they’ll only agree to it if the new re-amortized payments will truly be significantly different after a recast.
A mortgage recast usually takes one to two months to process. The exact time depends on how long it’s been since you made your last payment. For example, if today is August 9th and you just made your monthly payment on August 1st, then it might take until October 1st for your new recast mortgage payments to take effect. That’s because the bank will need to take time to calculate your new payments, mail you the paperwork, receive and process the paperwork you mail back and so on.
Many people try to rush a recast, typically because they wish to apply for a new loan and take advantage of low rates. Well, you’ll just have to be patient as the recast mortgage process can take a couple of months. Either be prepared and do this early, or just be patient. You never know, rates could be even lower in a couple of months!
AGREEMENT FOR MODIFICATION, RE-AMORTIZATION, OR EXTENSION OF A MORTGAGE
This Agreement for Modification, Re-Amortization, or Extension of a Mortgage (“Agreement”), made this 1st day of August, 2019, between JOHN SMITH (the “Borrower”. whether one or more) and New York Bank, N.A., (“Lender”) amends and supplements (1) the Mortgage, Deed of Trust, or Security Deed (“Security Instrument”) recorded in the Office of the Recorder of NEW YORK County, State of NEW YORK; (2) the Note, bearing the same date as, and secured by, the Security Instrument; and (3) prior extensions or modifications of the Note and Security Instrument, if any; with a collective Maturity Date of March 1, 2045 (the “Maturity Date”). The Note and Security Instrument together with any prior extensions or modifications thereof, are referred to in this Agreement as the “Mortgage,” and the Mortgage covers the real and personal property described in the Security Instrument and defined therein as the “Property”, located at
123 Fifth Avenue
New York,NY 10019
NOTE: All amounts and dates below were calculated as of the date of the preparation of this Agreement; actual amounts and dates may change based upon account activity.
In consideration of the mutual promises and agreements exchanged, the parties hereto agree as follows (notwithstanding anything to the contrary contained in the Mortgage):
1. Under the terms of the Mortgage, there remains unpaid as of the date on which this Agreement was prepared, the sum of $659,683.63 of principal, $1,511.78 of interest thereon; and $0.00 of advances made by the Lender thereunder; aggregating a total sum of $661,195.41 for which amount the Borrower is indebted to the Lender under the Mortgage.
2. Lender has accepted or will hereby accept from the Borrower the sum of $1,077,496.71, which has been or is to be applied to the principal balance.
3. After application of the amounts provided by Borrower as described in paragraph 2, Borrower requests Lender to re-amortize the unpaid principal balance, which amount is $645,947.44 (“New Unpaid Principal Balance”), over the remaining term. Borrower promises to pay to Lender the New Unpaid Principal Balance plus interest at the yearly rate of 2.750% from September 1, 2019. The interest rate Borrower will pay may change in accordance with the terms of the Mortgage. The amount of the Borrower’s monthly payment of principal and interest is $2,939.21, (exclusive of sums required to be deposited for the payment of taxes, insurance, etc.), which amount shall be paid to Lender beginning on October 1, 2019, until the next scheduled payment change date effective April 1, 2022. The amount of Borrower’s monthly payment may change in accordance with the terms of the Mortgage. Borrower will continue to make monthly payments on the same day of each succeeding month until principal and interest are paid in full. If on the Maturity Date, Borrower still owes amounts under the Mortgage, Borrower will pay these amounts in full.
4. If all or any part of the Property or any interest in the Property is sold or transferred (or if Borrower is not a natural person and a beneficial interest in Borrower is sold or transferred) without Lender’s prior written consent, Lender may require immediate payment in full of all sums secured by the Mortgage. If Lender exercises this option, Lender shall give Borrower notice of acceleration. The notice shall provide a period of not less than 30 days from the date the notice is delivered or mailed within which Borrower must pay all sums secured by the Mortgage. If Borrower fails to pay these sums prior to the expiration of this period, Lender may invoke any remedies permitted by the Mortgage without further notice or demand on Borrower.
5. Borrower will comply with all other covenants, agreements, and requirements of the Mortgage, including without limitation, Borrower’s covenants and agreements to make all payments of taxes, insurance premiums, assessments, escrow items, impounds, and all other payments that Borrower is obligated to make under the Mortgage.
6. Borrower understands and agrees that:
a) All the rights and remedies, stipulations, and conditions contained in the Mortgage relating to default in the making of payments under the Mortgage shall also apply to default in the making of the modified payments hereunder.
b) All covenants, agreements, stipulations, and conditions in the Mortgage, shall be and remain in full force and effect, except as herein modified, and none of the Borrower’s obligations or
liabilities under the Mortgage shall be diminished or released by any provisions hereof, nor shall this Agreement in any way impair, diminish, or affect any of Lender’s rights under or remedies on the Mortgage, whether such rights or remedies arise thereunder or by operation of law. Also, all rights of recourse to which Lender is presently entitled against any property or any other persons in any way obligated for, or liable on, the Mortgage are expressly reserved by Lender.
c) Nothing in this Agreement shall be understood or construed to be a satisfaction or release in whole or in part of the Mortgage.
d) Within ten (10) days of a request, Borrower agrees to make and execute such other documents or papers as may be necessary or required to effectuate the terms and conditions of this Agreement which, if approved and accepted by Lender, shall bind and inure to the heirs, executors, administrators, and assigns of the Borrower.
7. For the purpose of inducing and influencing the Lender to execute this Agreement, the undersigned represents of his own knowledge that the names of all owners or other persons having an interest in the mortgaged property are as follows:
All such Persons are of legal age, and none is under any legal disability, except as follows:
Borrower acknowledges and agrees that other than the changes listed above all other terms of the Mortgage remain unchanged, valid, and binding.
In testimony whereof, Borrower has hereunto set his/her hand and Lender has caused these presents to be executed in its corporate name by its Vice President, the day and year set forth below.
Borrower: John Smith
Lender: New York Bank, N.A.
Title: Vice President Loan Documentation
Disclosure: Hauseit® and its affiliates do not provide tax, legal, financial or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal, financial or accounting advice. No representation, guarantee or warranty of any kind is made regarding the completeness or accuracy of information provided. Hauseit LLC is a Licensed Real Estate Broker, licensed to do business in New York under license number 10991232340. Principal Office: 148 Lafayette Street, New York, NY 10013.