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Mortgage recast vs refinance

A recast keeps your rate and payoff date and lowers the payment after a lump-sum principal payment, usually for a small servicer fee. A refinance replaces the loan with a new rate and term, with closing costs.

Enter your loan, the lump sum and both offers to compare the new payments and the total interest plus fees each option costs.

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Inputs

Many servicers set a minimum lump sum for a recast; check yours.
Applying it in both options compares them with the same cash out of pocket.

Results update as you type. Amounts in USD. Rates are your own assumptions.

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Notes and methodology

What decides it

Rate
A recast cannot change the rate. If current rates are well below yours, a refinance can save more even after closing costs.
Upfront cost
Recast fees are often a few hundred dollars. Refinance closing costs commonly run to thousands, including appraisal, title and lender fees.
Term
A recast keeps the remaining term. A refinance into a new 30-year loan can lower the payment while adding years of interest.
Eligibility
Servicers set recast minimums and many government-backed loans cannot be recast. A refinance requires qualifying again, including credit and usually an appraisal.

How it works

Formula

Recast payment = (balance − lump sum) re-amortized at the current rate over the remaining months. Refinance payment = new principal × r ÷ (1 − (1 + r)^−n) at the new rate and term. Total cost = total interest + recast fee or closing costs.

Read the full methodology

Assumptions

  • Both loans are fixed-rate and fully amortizing with monthly payments; interest is the annual rate ÷ 12.
  • By default the lump sum is paid down in both options, so each uses the same cash; you can choose to keep it in the refinance instead.
  • Closing costs are paid in cash or added to the new balance; either way they count once as a cost.
  • Taxes, insurance, escrow, points and prepayment penalties are excluded.

Worked example

$300,000 at 7% with 300 months left and a $50,000 lump sum

The current payment is $2,120.34. A recast for a $250 fee re-amortizes $250,000 at 7% over the same 300 months: $1,766.95 a month and $280,334.40 in interest plus the fee. A refinance of the same $250,000 at 6% for 25 years with $5,000 of closing costs paid in cash costs $1,610.75 a month and $238,226.05 in interest plus costs. Refinancing costs less over the life of the loan by $42,108.35.

Step by step

  1. Find the current payment. $300,000 at 7% ÷ 12 over 300 months is $2,120.34 a month.
  2. Recast. The $50,000 lump sum brings the balance to $250,000, re-amortized at 7% over the same 300 months: $1,766.95 a month, $353.39 less. Interest over the life of the loan is $280,084.40; with the $250 fee, $280,334.40.
  3. Refinance. The same $250,000 at 6% for 25 years is $1,610.75 a month. Interest is $233,226.05; with $5,000 of closing costs, $238,226.05.
  4. Compare total cost. $280,334.40 − $238,226.05 = $42,108.35 in favor of refinancing, and the refinance payment is $156.19 below the recast payment.
  5. Find when the refinance catches up. The refinance starts $4,750 behind ($5,000 against $250). In month 1 it charges $1,250 of interest against $1,458.33 for the recast, and its cumulative cost drops below the recast’s in month 23: $33,277.27 against $33,317.05.

How to read your result

The headline names the option with the lower total of interest plus fees over the life of each loan. The summary and results give the current payment, the payment after a recast and after a refinance, each option’s total interest plus fee or closing costs, and each payoff time.

The chart plots cumulative interest and fees month by month, and the table adds each loan’s balance. The month where the lines cross is the break-even point for the refinance’s higher upfront cost; a sale or another refinance before that month would leave the recast cheaper in this model.

By default the lump sum goes into both options so they use the same cash. Keeping it in the refinance compares different cash positions, and the model does not value the kept cash. Totals are simple sums of future dollars, not discounted. Taxes, insurance, escrow, points, and prepayment penalties are excluded, and servicers decide whether a loan can be recast at all.

What changes the result most

Refinance rate
At 6.75% the refinance still wins, but only by $7,150.75. At 6.90% the two are within $24.84, and at 6.95% the recast costs less by $2,360.17.
Refinance term
A 30-year refinance at 6% lowers the payment to $1,498.88, but the five extra years of interest make the recast cheaper by $14,261.07.
Where the lump sum goes
Keeping the $50,000 and refinancing the full $300,000 raises the refinance payment to $1,932.90, and the recast then costs $4,536.86 less over the life of the loans.
Rolling in closing costs
Adding the $5,000 to a $255,000 balance raises the refinance payment to $1,642.97 and trims its advantage to $37,443.83, because interest is now charged on the closing costs too.

Questions

What is a mortgage recast?

After a large extra principal payment, the servicer recalculates the monthly payment on the lower balance over the remaining term. The rate and payoff date stay the same.

Is it better to recast or refinance?

A recast is cheaper to arrange and keeps your rate, so it tends to fit when your rate is already low. A refinance can save more when rates have fallen enough to cover its closing costs.

Does recasting lower the interest rate?

No. Recasting lowers the payment by reducing the balance. Only a refinance or a loan modification changes the rate.

Can every mortgage be recast?

No. Servicers decide whether they offer recasts, the minimum lump sum and the fee, and FHA, VA and USDA loans generally cannot be recast.

Why not just prepay without recasting?

A lump sum without a recast keeps the old payment and pays the loan off sooner, which usually saves more interest. A recast trades that for a lower required payment.

How much does a mortgage recast cost?

The servicer sets both the fee, which is often a few hundred dollars, and the minimum lump sum it will accept, which varies from servicer to servicer. Some servicers do not offer recasts. The fee counts once in this calculator, alongside the interest over the remaining term.

Does paying extra principal lower my monthly payment?

Not by itself on a fixed-rate loan. Extra principal shortens the loan and cuts interest, but the required payment stays the same until the servicer recasts. In the example, paying $50,000 without a recast keeps the $2,120.34 payment and clears the loan in 201 months instead of 300, with $174,353.14 of interest against $280,084.40 after a recast.

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Sources

These references explain the concepts behind the calculation. They do not endorse this site. Estimates leave out any cost or condition you did not enter.