Mortgage Recast Calculator

Mortgage Recast Calculator

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If you’re a homeowner looking to optimize your mortgage strategy, you might consider making a lump sum payment towards your principal balance.

A Mortgage Recast Calculator can be a vital tool in this process, helping you see how this payment will affect your monthly mortgage payments.

By making a significant lump sum payment, you can recalibrate your mortgage payments while keeping your original interest rate and loan term. This means you can achieve lower monthly payments, which can boost your financial stability and flexibility.

Using a Mortgage Recast Calculator may let you determine your new monthly payment after making the lump sum payment. This may help you understand the impact of your payment and plan your finances more effectively.

What is mortgage recasting?

Mortgage recasting is a financial strategy you can use to lower your monthly mortgage payments by making a substantial lump sum payment toward the principal balance of your existing mortgage. This prompts your lender to re-amortize the loan, resulting in a reduced monthly payment while keeping the original interest rate and loan term. This way, you can enjoy the benefits of lower monthly payments without needing to refinance, which often involves significant costs and credit checks.

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Instructions to use Mortgage Recast Calculator

  1. Gather Your Mortgage Information

    Before using the Mortgage Recast calculator, have the following information ready:

    • Original Loan Amount: The total amount you borrowed when you first took out the mortgage.
    • Interest Rate: Your current mortgage interest rate (annual percentage rate, or APR).
    • Remaining Term: The number of years left on your mortgage.
    • Current Balance: The amount you still owe on your mortgage.
  2. Input Your Mortgage Details

    Once you have the calculator open, enter the following details:

    • Original Loan Amount: Type in the initial loan amount. For example, if you took out a $300,000 mortgage, enter $300,000.
    • Interest Rate: Input the annual interest rate on your mortgage. For instance, if your rate is 4%, enter 4.
    • Remaining Term: Enter the number of years remaining on your mortgage. For example, if you have 20 years left, input 20.
    • Current Balance: Enter the remaining balance of your mortgage. For example, if you owe $200,000, enter $200,000.
  3. Enter Recast Information

    Lump Sum Payment: Input the amount you plan to pay as a lump sum towards the principal. For instance, if you plan to pay $20,000, enter $20,000.

  4. Calculate New Mortgage Terms

    Calculate New Payment: The calculator will adjust the loan balance based on your lump sum payment and recalculate your monthly payment.

  5. Review Results

    The calculator will typically display:

    • New Principal Balance: The amount of your mortgage after applying the lump sum payment. For example, if your original balance was $200,000 and you paid $20,000, the new principal balance would be $180,000.
    • New Monthly Payment: The adjusted monthly payment is based on the new principal balance, remaining term, and interest rate.
    • New Loan Term: The length of time needed to pay off the mortgage with the new payment amount. The term may be shortened if the payment is higher.
    • Interest Savings: The total amount you save in interest over the remaining term due to the lump sum payment.

Example Calculation

  1. Original Loan Details:
    • Original Loan Amount: $300,000
    • Interest Rate: 4%
    • Remaining Term: 20 years
  2. Current Details:
    • Current Balance: $200,000
  3. Recast Info:
    • Lump Sum Payment: $20,000
  4. Results from the Calculator:
    • New Principal Balance: $180,000
    • New Monthly Payment: Calculated based on the new principal of $180,000 over the remaining 20 years at 4% interest.
    • Interest Savings: Shows the difference in total interest paid over the life of the loan due to the lump sum payment.

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Tips for Using the Calculator

  • Double-Check Inputs: Ensure all entered details are accurate to get precise results.
  • Consider Different Scenarios: Try varying the lump sum amounts to see how different payments impact your mortgage.
  • Consult Your Lender: Before making a recast payment, ensure that your lender allows recasts and confirms the exact process.

Frequently Asked Questions

  • How does a mortgage recast calculator work?
    The calculator uses a formula to re-amortize your loan based on the reduced principal balance after your lump sum payment. It maintains your original interest rate and loan term to determine your new, lower monthly payment.
  • Can I use a mortgage recast calculator for any type of mortgage?
    No, not all mortgages are eligible for recasting. It’s important to check with your lender to confirm if your mortgage qualifies for recasting.
  • Are there fees associated with using a mortgage recast calculator?
    The mortgage recast calculator itself is typically free to use. However, the actual process of recasting your mortgage may involve a moderate fee charged by your lender.
  • What are the limitations of a mortgage recast calculator?
    While the Mortgage Recast Calculator can provide valuable estimates, it only accounts for some possible fees and conditions set by your lender. Always confirm the final details with your lender to ensure accuracy.
  • Can I use a mortgage recast calculator to see the impact of multiple lump sum payments over time?
    The Mortgage Recast Calculator allows you to input multiple lump sum payments and see how each payment affects your principal balance and monthly payments. This can help you strategize the best times to make additional payments to maximize your savings.

Conclusion

The Mortgage Recast Calculator helps you assess how a lump sum payment towards mortgage principal will affect your monthly payments. By recalculating your monthly payments based on the updated loan parameters, you can optimize your cash flow while retaining your original loan terms and interest rate.

Mortgage recasting has several pros and cons that you should consider alongside refinancing alternatives.

Using mortgage recasting strategically may help enhance your financial flexibility and help you manage your mortgage more effectively.