The short version
A mortgage recast lets you pay a lump sum toward your loan principal, after which your lender recalculates your monthly payment on the smaller balance — same interest rate, same remaining term, lower bill. It costs a small fee (usually $150 to $500) instead of a refinance's thousands in closing costs, and it does not touch your rate. If you like your current rate and just want monthly breathing room, recasting is often the cheapest way to get it.
How a recast works, step by step
All you need is your balance, your rate, the years left, and the size of the lump sum you would put down.
- Check that your servicer offers recasting.
Conventional loans usually qualify; FHA, VA, and USDA loans typically do not. Call your servicer and ask for their recast policy in writing: the minimum lump sum (commonly $5,000), the fee, and how long processing takes. - Make the lump-sum principal payment.
Send the agreed amount as a principal-only payment, separate from your regular monthly payment. Keep proof it was applied to principal — a payment that lands in the wrong bucket does not qualify. - The lender re-amortizes the loan.
The servicer subtracts the lump sum from your balance and re-runs the amortization formula on the smaller balance over your remaining term at the same rate. This is the entire calculation: new payment = reduced balance × monthly rate ÷ (1 − (1 + monthly rate)−months left). - Your new payment schedule begins.
You get an updated statement with the lower payment. The term does not shrink and the rate does not change — only the required monthly amount drops. The mortgage recast calculator runs steps three and four instantly for your numbers.
Worked example: $300,000 balance at 7% with 25 years left
Monthly rate = 7 ÷ 12 ÷ 100 = 0.0058333, 300 payments remaining:
Lump sum $50,000 → new balance = $250,000 (plus a $250 recast fee paid separately)
Recast payment = 250,000 × 0.0058333 ÷ (1 − 1.0058333−300) = $1,766.95
Monthly saving = $2,120.34 − $1,766.95 = $353.39
Lifetime interest: $336,101.28 → $280,084.40, a saving of $56,016.88
Answer: the $50,000 lump sum buys a permanently lower $1,766.95 payment and saves $56,017 in lifetime interest — a return of about $353 a month on the cash, guaranteed, for the life of the loan. For comparison: keep paying $2,120.34 on the reduced balance and the loan ends in 16 years 9 months with only $174,353 of interest — cheaper overall, but the required bill never drops.
Recast vs. refinance: when each wins
People reach for a refinance when what they really want is a recast. The two solve different problems. Refinancing replaces your loan with a new one — new rate, new term, new underwriting, thousands in closing costs — and it makes sense when market rates have fallen well below yours. Recasting keeps your existing loan and just re-spreads it: a few hundred dollars, no appraisal, no credit re-check, and your rate survives. Quick decision rule: if you would refinance only to get a lower payment and you already have a decent rate, recast first. If your rate is high relative to today's market, the refinance break-even calculator tells you whether refinancing pays for itself.
Recast vs. extra payments: the honest trade-off
A lump sum with no recast keeps your payment the same and shortens the loan — that path always costs the least total interest, because every extra dollar retires principal years ahead of schedule. A recast costs more lifetime interest but buys monthly cash flow. There is no wrong answer, only a wrong mismatch with your goal: choose the recast when the budget needs relief (a job change, a baby, retirement on the horizon), and choose plain extra payments when the budget is comfortable and you want the loan gone. A common middle path: recast for the lower required bill, then keep paying the old amount anyway.
Mistakes that waste the lump sum
The biggest one is sending the money before confirming your servicer recasts at all — FHA and VA borrowers discover too late that their lender simply does not offer it. The second is paying the lump sum as part of a regular payment without flagging it as principal-only; a misapplied payment can sit in suspense instead of cutting the balance. The third is recasting a tiny lump sum: below roughly $10,000, the payment change is often so small it is not worth the fee — run the numbers first. And remember that a recast does not change escrow: property taxes and insurance are still owed in full — a recast only shrinks the principal-and-interest portion.
Frequently asked questions
How much does a mortgage recast cost?
Usually $150 to $500, depending on the servicer — a small administrative fee, not a percentage of the loan. Some lenders recast for free as a retention perk. Compare that with a refinance, where closing costs typically run 2–5% of the loan amount: on a $300,000 loan, that is $6,000–$15,000 versus a few hundred.
Will recasting hurt my credit score?
No hard credit inquiry is involved — the lender already holds your loan — so there is no score impact from the recast itself. Your balance dropping may even help your overall picture slightly, but the effect is negligible next to factors like payment history.
Can I recast more than once?
Most servicers allow it, as long as each recast meets the minimum lump-sum requirement. Borrowers sometimes recast in stages — for example, after selling a previous home and then again after a bonus. Each recast carries its own small fee, so batching lump sums into one recast is usually cheaper.
Does the lump sum have to be one payment?
Generally yes: servicers recast on a single qualifying principal payment, not on months of small extra payments added up. If you are building toward a recast, hold the cash in savings and send it as one principal-only payment when you are ready.
What if my rate is adjustable (ARM)?
Most ARMs can be recast too, with a twist: the recalculated payment is based on the current rate and remaining term, and the payment will still adjust at the next reset date. A recast lowers the baseline the adjustments are computed from, but it does not freeze the rate.
Is there a downside to recasting?
Two honest ones. First, opportunity cost: the lump sum earns you a guaranteed return equal to your mortgage rate, and if that rate is low, long-term investing could beat it — see the payoff-vs-invest framing in the calculator's comparison. Second, the term does not shrink, so if your goal is being debt-free sooner, plain extra payments win. The recast calculator shows both paths so you can see exactly what the lump sum buys each way.