If you make a lump-sum payment on your Colorado mortgage, two different things can happen. You can make an extra principal payment and lower your loan balance, or you can ask your servicer to formally recast the loan so the remaining balance is re-amortized. Refinancing is different again: it replaces your current loan with a new one, usually to change the rate, term, or both.
That distinction matters because a lump-sum payment by itself does not automatically reduce your monthly payment. In many cases, it simply pays down principal unless your servicer approves a mortgage recast.
If you come into extra cash through a bonus, inheritance, or another windfall, using part of it toward your mortgage may still be worth considering. The key is understanding whether your goal is to lower your monthly payment, pay less interest over time, or change your loan terms altogether. This guide explains how mortgage recasting works in Colorado and how it compares with simple principal prepayments and refinancing.
Short answer: A lump-sum payment can reduce your mortgage balance, but it usually will not lower your required monthly payment unless your loan is formally recast. If you only make an extra principal payment, you may save interest and build equity faster, but your scheduled payment typically stays the same.
Mortgage recasting involves making a lump sum payment towards your mortgage. More importantly, your cash contribution would be put exclusively towards the principal portion of the mortgage, and not the interest portion.
This is important, as reducing your principal amount will effectively lower the total amount you will end up paying in interest. As such, you can save a lot of money over the course of your home loan.
Also referred to as “reamortization,” mortgage recasting will result in your mortgage being reamortized. When your loan balance is reduced, so will your monthly mortgage payments.
It’s important to note that mortgage recasting does not result in a change in interest rate. The rate stipulated in your mortgage contract remains intact, as will your mortgage terms.
Mortgage recasting makes most sense when your interest rate is fixed and comparatively low. If your mortgage interest rate is high, on the other hand, recasting your mortgage is not suggested. Instead, a refinance might make more sense.
Before you have your mortgage recast, you’ll first need to find out if this arrangement is available through your lender or loan servicer. You will also need to verify whether recasting is available for the specific type of mortgage you currently hold.
That step is important because making an extra principal payment is not the same as formally recasting the loan. A servicer may accept a lump-sum payment without changing your required monthly payment, while a recast typically requires approval and a separate request.
Certain types of mortgages — including FHA and VA loans — are not eligible for mortgage recasting. But it may be available for other home loan types, including:
If your mortgage qualifies for mortgage recasting and your lender allows it, the next step is to let your loan servicer know of your intentions to make a lump sum payment towards your mortgage in Colorado.
There may be some confusion between mortgage recasting and refinancing. However, they are not the same.
As mentioned earlier, mortgage recasting involves making a lump sum contribution to your mortgage to reduce your outstanding balance. No changes are made to the mortgage interest rate nor the mortgage terms.
On the other hand, refinancing involves a completely new interest rate. More specifically, a totally new mortgage would be taken out to replace the old mortgage. That means the new mortgage would also have new terms in addition to a new rate.
Refinancing is an attractive option if the goal is to reduce the interest rate, which would also help you save money over the life of your loan. If your interest rate is very high, you’re spending a lot of extra money on the interest portion of your mortgage.
When rates drop, you could refinance your mortgage and lock in a lower rate. By refinancing at a lower interest rate, your overall loan amount will be reduced because you’ll owe a lot less in interest.
Refinancing doesn’t affect your principal, but it does affect the interest rate. As such, your mortgage will end up being a lot cheaper. But if the interest rate on your mortgage is already low, a mortgage recast might make more sense.
Use your main goal to guide the decision:
In short, recasting is mainly about lowering the required payment after a large principal reduction, while a plain extra payment is mainly about reducing balance. Refinancing is the broader reset option when the rate or terms need to change.
Mortgage recasting may be a good option for homeowners in Colorado, as it offers the chance to reduce your monthly mortgage payments as well as your overall mortgage balance. And the simplicity of mortgage recasting makes it even more attractive.
Your home’s equity will be positively affected because the lump sum payment you make will go exclusively towards the principal portion of your mortgage. Mortgage recasting offers an excellent way to immediately increase the equity in your home.
A lump-sum payment can help reduce your overall mortgage amount, but that does not necessarily mean your scheduled last payment date will automatically move up when the loan is recast. In many cases, recasting is primarily used to lower the required monthly payment on the remaining balance while keeping the existing loan term in place.
If your goal is to pay the mortgage off sooner, making extra principal payments and continuing to pay more than the required amount may be more relevant than recasting alone.
A mortgage recast is better suited for certain scenarios, including the following:
Mortgage recasting can help you reduce your mortgage balance and monthly payments, but there are other options available. Take the time to weigh the pros and cons of both recasting and refinancing, as well as other options available to you. And as always, chat with a mortgage expert to help you make the right decision!
Sammamish Mortgage can help. We serve clients across Washington, Idaho, Colorado, Oregon, and California. Since 1992, we’ve been providing several mortgage programs and products with flexible qualification criteria to borrowers across the Pacific Northwest. Visit our website to get an instant rate quote or to use our online mortgage calculator. Or, reach out to us if you are ready to get pre-approved for a mortgage.
Usually, yes. A mortgage recast re-amortizes the remaining balance after a lump-sum principal payment, which can lower the required monthly payment. A regular extra principal payment by itself typically does not change the scheduled payment.
An extra principal payment reduces the loan balance and may lower total interest over time, but the required monthly payment usually stays the same. A mortgage recast also starts with a principal reduction, but the servicer formally recalculates the remaining payments so the monthly payment can go down.
It can be worth it if the goal is to lower the monthly payment without replacing the current loan. It may be especially appealing when the mortgage already has a low fixed interest rate and the borrower wants to keep that rate instead of refinancing.
Mortgage recasting generally depends on the servicer and the loan type. A borrower usually needs to confirm that the servicer offers recasting, that the specific mortgage is eligible, and that the borrower makes a lump-sum principal payment and a formal recast request.
It may be available on some conventional, high-balance, and jumbo loans if the lender or servicer allows it. The content states that FHA and VA loans are generally not eligible for mortgage recasting.
The required lump-sum amount can vary by lender or loan servicer. No universal minimum is stated here, so the best next step is to ask the servicer what principal payment and approval requirements apply to the specific loan.
The exact fee can vary by servicer, and no specific amount is provided here. Borrowers should ask the lender or loan servicer whether a recast fee applies and what other requirements must be met before requesting one.
A lump-sum payment reduces the principal balance, which can save interest over time and increase home equity faster. However, it usually does not lower the required monthly payment unless the loan is formally recast.
Recasting mainly lowers the required monthly payment on the remaining balance while keeping the existing interest rate and loan term in place. If the goal is to pay the loan off sooner, continuing to make extra principal payments may matter more than recasting alone.
It can be. If the current mortgage already has a low fixed rate, recasting may make more sense than refinancing because it can reduce the monthly payment without replacing the loan. Refinancing is more useful when the goal is to change the interest rate, term, or overall loan structure.
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