Mortgage Refinance vs Recast: Which is Better?
If your goal is to lower your monthly mortgage payment, you generally have two options: 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 is. The CFPB refinancing guide outlines when refinancing makes financial sense and what fees to watch for during the process.
- 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 |
