If you want a lower monthly payment, recasting and refinancing are two very different paths. A recast keeps your existing loan and simply re-amortizes it after a lump-sum payment. A refinance swaps in an entirely new loan. Knowing the difference helps you pick the cheaper route to your goal.

What is a mortgage recast?

A recast, sometimes called re-amortization, happens when you make a large lump-sum payment toward principal and the lender recalculates your monthly payment over the remaining term. Your interest rate and payoff date stay the same, but because the balance is lower, the monthly payment drops. It is a low-cost way to reduce your payment if you have come into extra cash.

What is a refinance?

A refinance pays off your current mortgage with a brand-new loan, which can carry a different interest rate, term, and payment. Borrowers refinance to lower their rate, shorten or lengthen their term, switch loan types, or tap equity through a cash-out refinance. Because it is a new loan, it involves an application, an appraisal, and closing costs.

How do the costs compare?

Recasting usually costs a small flat fee, often a few hundred dollars, with no new appraisal or underwriting. Refinancing involves closing costs that can run 2 to 5 percent of the loan amount. If your goal is simply a lower payment and your rate is already good, a recast is far cheaper. If a meaningfully lower rate is available, a refinance may save more over time despite the upfront cost.

When should you choose each?

Recast when you have a lump sum, like a bonus or home-sale proceeds, and a rate you are happy with, and you want a lower payment without the hassle and cost of a new loan. Refinance when current rates are notably below your existing rate, when you want to change your term, or when you need to pull cash out. Sometimes doing both, refinancing then later recasting, fits a borrowers plan.

Frequently Asked Questions

Does recasting lower my interest rate?

No. A recast keeps your original rate and term and only lowers the payment by reducing the balance. If you want a lower rate, refinancing is the tool.

Is refinancing worth the closing costs?

It depends on how much you lower your rate and how long you will keep the loan. Divide the closing costs by your monthly savings to find the break-even point; if you will stay past it, refinancing usually pays off.

Can any loan be recast?

Most conventional loans allow recasting, but government loans like FHA and VA generally do not, and some lenders set minimum lump-sum amounts. Check with your servicer before planning a recast.

Related Reading

• When to Refinance Your Mortgage
• How to Lower Your Monthly Mortgage Payment
• Cash-Out Refinance vs HELOC

Working through this in Colorado? I’m David Silva, a mortgage loan officer based in Westminster, CO (NMLS 1352284), licensed in Colorado, California, Georgia and Texas. Take a look at the All In One Loan or all loan programs — or send me your scenario and I’ll tell you straight whether it works.