Mortgage Refinance vs Recast: Which is Better?
If your goal is to lower your monthly mortgage payment, you generally have two options: Refinancing or Recasting. They both achieve a lower payment, but the mechanics, costs, and math are completely different.
The Short Answer
Recast when you have come into a large lump sum of cash (like an inheritance, a bonus, or selling a previous home) and you want to use it to lower your monthly payment without changing your interest rate. It usually only costs a small administrative fee of around $250.
What is a Mortgage Refinance?
Refinancing means you are taking out a brand new mortgage to pay off your old one. You restart the clock (usually for another 30 or 15 years), and you get whatever the current market interest rate is.
- Pros: Can drastically lower your payment if rates have dropped. Can allow you to pull cash out of your home equity.
- Cons: Extremely expensive. You have to pay closing costs again (appraisal, title fees, origination fees) which usually total 2% to 5% of the loan amount. It also resets your amortization schedule back to year zero, meaning you'll pay mostly interest again.
You should always calculate your breakeven point before refinancing. If a refinance costs you $5,000 in closing fees, but saves you $200 a month, your breakeven point is 25 months ($5,000 / $200). If you plan to move before 25 months, refinancing is a bad idea.
What is a Mortgage Recast?
A recast keeps your exact same loan, your exact same interest rate, and your exact same payoff date. All it does is recalculate your monthly payment based on a new, lower principal balance.
To do this, you must give your lender a large lump sum payment toward the principal (usually a minimum of $5,000 to $10,000). The lender then re-amortizes the remaining balance over the remaining months.
- Pros: Very cheap (usually a $250 to $500 fee). You keep your current interest rate (great if you locked in a 3% rate years ago!). No credit check or appraisal required.
- Cons: Requires a large amount of cash upfront. Does not lower your interest rate or shorten your loan term. FHA and VA loans generally cannot be recast.
Side-by-Side Comparison
| Feature | Refinance | Recast |
|---|---|---|
| Interest Rate | Changes to current market rate | Stays exactly the same |
| Payoff Timeline | Resets (e.g., restarts a new 30-year term) | Stays the same (keeps original end date) |
| Upfront Costs | High (Closing costs of 2% to 5%) | Low (Flat fee around $250 to $500) |
| Requirements | New credit check, income verification, appraisal | Just a large lump sum cash payment |