How Does Making Lump Sum Payments Impact Your Mortgage in Oregon?

December 28, 2020
Last updated:
November 23, 2021
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Did you know that there is a way to reduce your Oregon mortgage loan amount by “recasting” it?

A mortgage is a type of installment loan that is used to finance a home purchase. The amount you borrow from a lender will typically be repaid in installments, which include both the principal portion of the mortgage and the interest. These payment amounts will be specified in your mortgage contract when you first secure your home loan.

The mortgage payments you make are designed with your budget in mind. But at some point, you may find yourself able to afford more than the regular mortgage payment amounts you’ve been making thus far. You may come upon a large sum of cash that you may want to use to pay down part of the mortgage principal.

In This Article

No matter how you come upon a large sum of money — be it from a raise at work, an inheritance, or even winning the lottery — you may wonder how you should use that extra cash.

While there are all sorts of expenditures you could make, paying down part of your outstanding home loan balance may be a sound choice. That said, you should understand how an additional lump sum payment could impact your home loan in Oregon, which is known as “mortgage recasting.”

What is Mortgage Recasting?

Mortgage recasting is also known as “reamortization” and involves making a lump sum payment towards your home loan. By recasting your Oregon mortgage, the entire lump sum contribution would be put specifically towards the principal portion of the loan, not the interest portion.

After you make your lump sum payment, your lender will reamortize your home loan. In turn, this will reduce your overall loan balance, which means your monthly mortgage payments will also be reduced. Further, the total interest amount that you pay over the life of the loan will also be lower, which can save you quite a bit of money over the long run.

It should be noted that mortgage recasting does not mean that your interest rate will change. Instead, it will still remain the same, as will the terms of your mortgage.

It makes the most sense to recast your mortgage when your interest rate is fixed and relatively low. Otherwise, if your mortgage interest rate is high, recasting your home loan is not recommended.

Qualifications And Availability of Mortgage Recasting

Some lenders might not offer mortgage recasting, so you’ll first need to verify whether or not this arrangement is available with your lender before you consider it.

In addition, you’ll need to find out if your particular home loan is eligible for a mortgage recast, as certain mortgage types — such as FHA and VA loans — do not qualify for recasting. On the other hand, other mortgage types are eligible, including conventional mortgages, high-balance loans, jumbo loans, home equity loans, and home equity lines of credit (HELOCs).

If your mortgage lender allows mortgage recasting and your particular home loan is eligible, the next step in the process is to inform your loan servicers that you intend to make a lump sum payment towards the principal portion of your mortgage in Oregon.

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Mortgage Recasting and Refinancing: How Do They Differ?

Mortgage recasting should not be confused with mortgage refinancing. The two differ from one another.

In the case of mortgage recasting, a lump sum of money is made to lower the outstanding loan balance on a mortgage. There are no changes made to the interest rate nor the terms of the mortgage.

Mortgage refinancing is different in that a completely new mortgage would be taken out to pay off the existing mortgage. The new mortgage will come with a totally new interest rate and a new set of terms.

Refinancing makes most sense if the going interest rate is very low and you are currently locked in at a high rate. By refinancing your mortgage at a much lower interest rate, you can reduce your overall loan amount because you will owe far less in interest.

While refinancing does not affect your principal, it impacts the interest rate, which can make your mortgage cheaper if the circumstances warrant this type of arrangement.

However, if you already have a low rate that’s fixed, a mortgage recast would make more sense if the goal is to reduce your monthly mortgage payments.

Reducing the Principal Balance

Homeowners in Oregon may find mortgage recasting an attractive option because of the opportunity to reduce the overall loan amount as well as monthly mortgage payments. Plus, mortgage recasting is relatively simple and straightforward.

Since the lump sum payment that you make with a mortgage recast will go entirely towards the principal portion of your home loan, the equity in your home will be positively impacted. Mortgage recasting is a great way to instantly increase your equity amount in your home.

More Effective Home Loan Payments

Making a lump sum payment towards your Oregon mortgage means that the interest charges per month will be modified. The interest that you pay will be calculated based on the loan amount. Therefore, a higher loan amount will translate into higher interest payments, and a lower loan amount will mean lower interest payments.

By recasting your mortgage and reducing your loan amount, the interest will be calculated on a lower loan amount, thereby reducing your mortgage payments. That means each mortgage payment you make going forward will be more effective at lowering your mortgage debt.

Changes in Final Loan Payment Date

Lowering your overall mortgage amount means that your final loan payment date will arrive sooner rather than later. Depending on the lump sum amount you put towards your mortgage, the life of your home loan can be shortened by as little as a couple of months to as long as a few years.

When Should You Consider a Mortgage Recast in Oregon?

A mortgage recast is ideal for certain situations, such as the following:

  • You have a large amount of money to spare
  • You want to reduce your mortgage balance and monthly mortgage payments
  • You’re not interested in creating a new mortgage by refinancing
  • You have a fixed-rate home loan at a low interest rate

Mortgage recasting can be a great way to cut back on the overall amount that you end up paying on your mortgage, but it’s not the only option out there. Be sure to compare the benefits of a mortgage recast with the perks of other options — like refinancing — before choosing the best route to take. And always speak with a mortgage expert to help you make an informed decision.

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Sammamish Mortgage Can Help With Mortgage Recasting

Sammamish Mortgage has helped many home buyers in the Pacific Northwest since 1992. If you are looking for mortgage financing in Oregon, we can help. Sammamish Mortgage offers mortgage programs in Colorado, Idaho, Oregon and Washington.

Contact a loan officer if you have any mortgage-related questions or concerns. If you are ready to move forward with mortgage financing, you can view rates, obtain a customized instant rate quote, or apply instantly directly from our website.

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