Mortgage recast question

[kanga1]

I bought another home before I sold my first home. Tomorrow I will close on the sale of my original home and walk away with approx $130,000. I plan on putting that towards my second home and recasting the mortgage but I can't do the recast for 6 months per the bank. Wondering what to do with the $130,000 in the meantime......

A) Pay $55,000 towards the new mortgage right away so I can get rid of PMI and put $75k in savings until the recast at which point put it towards the mortgage

B) Pay $100,000 towards the new mortgage right away and sit on $30,000 til the recast just to make sure nothing major pops up with the new house

[sandandsea]

It depends on if you’re required to make a payment with the recast. We made the payment right away with the full amount and then did the recast since we didn’t have to make the payment at the same time as the recast.

[Cappy]

Will the difference in the downpayment change your rate? We did something similar and they told us right before close that we could save .10 on the interest rate with an extra 10k down because we were so close to being at 25% downpayment vs 22% or something like that. Other than that I'd run the #s through a calculator to see the impact of those 6 months with the 2 scenarios in terms of interest.

[farfalla2011]

I've never done a recast, but I did look into it before. I don't know if it's with every lender, but mine, there was a max amount of funds you could contribute per year for a recast. I think the extra had to be under the P&I for the year to qualify. Example, say your P&I each month is $1,000, you couldn't put more than $12K extra against your mortgage to recast in a given year. I'm not sure how it actually works since we didn't end up going that route, but with the larger amounts you are looking at putting against it, you may want to ask what all the rules and restrictions are around it.

I would for sure put enough towards the loan to get rid of PMI, but it would depend on the restrictions of the recast what I would do with the rest. I would likely save some for an emergency fund if I didn't already have one and then still put the chunk of money towards the mortgage so you'd pay so much less interest in the long run. Timing would be dependent on the additional recast details.

[Cappy]

Aug 19, 2020 10:36:53 GMT -5 farfalla2011 said:

I've never done a recast, but I did look into it before. I don't know if it's with every lender, but mine, there was a max amount of funds you could contribute per year for a recast. I think the extra had to be under the P&I for the year to qualify. Example, say your P&I each month is $1,000, you couldn't put more than $12K extra against your mortgage to recast in a given year. I'm not sure how it actually works since we didn't end up going that route, but with the larger amounts you are looking at putting against it, you may want to ask what all the rules and restrictions are around it.

I would for sure put enough towards the loan to get rid of PMI, but it would depend on the restrictions of the recast what I would do with the rest. I would likely save some for an emergency fund if I didn't already have one and then still put the chunk of money towards the mortgage so you'd pay so much less interest in the long run. Timing would be dependent on the additional recast details.

This must depend on the lender because ours had a minimum (10k min to recast) but no max.

[sandandsea]

Aug 19, 2020 10:43:02 GMT -5 Cappy said:

Aug 19, 2020 10:36:53 GMT -5 farfalla2011 said:

I've never done a recast, but I did look into it before. I don't know if it's with every lender, but mine, there was a max amount of funds you could contribute per year for a recast. I think the extra had to be under the P&I for the year to qualify. Example, say your P&I each month is $1,000, you couldn't put more than $12K extra against your mortgage to recast in a given year. I'm not sure how it actually works since we didn't end up going that route, but with the larger amounts you are looking at putting against it, you may want to ask what all the rules and restrictions are around it.

I would for sure put enough towards the loan to get rid of PMI, but it would depend on the restrictions of the recast what I would do with the rest. I would likely save some for an emergency fund if I didn't already have one and then still put the chunk of money towards the mortgage so you'd pay so much less interest in the long run. Timing would be dependent on the additional recast details.

This must depend on the lender because ours had a minimum (10k min to recast) but no max.

Same. We had a minimum but no max and our lender doesn’t charge for a recast.

[madisen]

There's a difference between a recast and just paying more principal against your loan. And it's the servicer that has their rules and guidelines for a recast, not the lender.

A recast takes the new loan amount, keeps the terms of the loan the same, but it changes the amortized monthly payment based on the new unpaid principal amount. Sometimes there's a cost to this because there is some administrative work involved on the servicing side. This is also the reason most servicers will have a minimum to recast. If you continue to make your new, lower expected monthly payment and no additional, you will still pay off your mortgage per the original timeframe on the original final payment month/year.

Paying down a loan, assuming your loan has no prepayment penalty which most standard mortgage loans don't these days, is allowed and doesn't cost anything. This option doesn't change the amortized payment going forward, but it does cut down payments at the end because you'll pay down your mortgage sooner and end up paying less interest.

[kanga1]

Aug 19, 2020 8:17:39 GMT -5 Cappy said:

Will the difference in the downpayment change your rate? We did something similar and they told us right before close that we could save .10 on the interest rate with an extra 10k down because we were so close to being at 25% downpayment vs 22% or something like that. Other than that I'd run the #s through a calculator to see the impact of those 6 months with the 2 scenarios in terms of interest.

No it won't change my rate but it will lower my monthly payment considerably. I locked in at 2.875 for a 30 year conventional so at least I got a good rate!