Can't refinance? Consider 'recasting' instead
You can reduce your monthly mortgage payment, but you need to have some cash upfront.
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If you've found that a refinance isn't for you, there may be another option for lowering your monthly mortgage payments — if you can pull together some cash.
"Recasting," also called reamortization, is a little-known way to shrink your monthly house payment. Recasting involves paying a lump sum toward your mortgage and then readjusting your payment to reflect your new balance.
While not every lender offers recasting as an option for their mortgage borrowers, some offer this service for as little as $150, a substantial savings compared with the closing costs of a refinance. The only catch is that you may need to post a fairly large sum to the mortgage principal to get started — possibly $5,000 or more.
Not all loans are eligible for recasting. Conventional loans and conforming Fannie Mae and Freddie Mac loans are the most common loans to be eligible for recasting, but loans through the Federal Housing Administration and Department of Veterans Affairs cannot be recast. In general, fixed-rate home loans are the most common to be recast, but some lenders may allow recasting on adjustable-rate mortgages or on jumbo loans.
Why consider a loan recast?
As with virtually all mortgage decisions, you should consider your individual circumstances before deciding on a loan recast. For example, if your mortgage rate is considerably above current market rates, it may be better to refinance your loan with a lower rate. If your goal is to pay off your home loan faster, you may be better off making extra payments either on a bimonthly basis or making one extra payment per year, since a recast doesn't shorten your loan term.
But a recast may be a good choice if you cannot qualify for a home refinance because of credit issues. When you request a recast, you are not applying for a new loan, but simply adjusting the payments on your current loan.
- MSN Money: Try this refi calculator
Homeowners who receive a large bonus or an inheritance are prime candidates for a recast. You can use a mortgage calculator to see what your payments will be on your new loan balance after the process is through.
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Loan recasting with a home-sale transaction
Some homeowners may opt for a loan recast when selling one home and buying another. While it can be difficult to coordinate your home sale and your purchase, a recast could help if you have the money to pay two mortgages at once.
Once your previous home sells, you can use the profit from the sale to pay down the balance on your new loan and reduce your monthly payments. Most lenders will not allow a recast within 90 days of starting the loan repayments, so you may need to wait for a while before you're eligible for a recast in this scenario.
Always be sure to review your overall financial plan when considering a loan recast. If you have extra cash, you may find it wiser to apply it to your retirement fund or to pay off other debt. But if a lower monthly mortgage payment is high on your priority list, a recast could be the right option for you.
The American people carrying mortgages and paying rent have to be re-trained. I understand there is exceptions but they should:
a) Garage sale anything they have not use in 3 months or more, clothes that do not fit, stuff sitting in garage.
b) Use income tax return for something that will save you money such as down payment for a home, pay your principal on your mortgage. Do not spend it in restaurants, buy a new car(unless yours just died), vacations, jewelry.
c) Contribute towards your 401K still companies offer a match and a lot of employees do not fully or partially contribute.
d) A/C & Heating settings: These can be adjusted to reduce your bill in the summer put 77 instead of 70 in the winter put 68 instead of 72 it will free some cash, but put it towards your principal or in a savings account to buy a home do not use it to throw a party or dine out.
e) Reduce your bills dining out or drinking out. There is ocassions to do this B-days, weddings but try not to do it every week 3 or 4 times for 30 years.
f) Shop around for things like car insurance, home insurance, and other services you might be surprised how many times companies increased your premium for not a thing and how much can you save for switching to another company.(verify in writing that your new coverages are the same or better than before)
g) obtain a second job, rent a room to a tenant, rent a garage to somebody.
h) reduce bills you do not need such as GYM(I signed up for 3 years now and I went up to 5 times per year) You could of run around your neighborhood and flex your muscles in the back yard and save $10 x 36 months. Actually exercise is good for you and you should do it more often, but if you are planning to not do it just do it around the park.
I) Buy everything cash unless you get a 0% offer to buy the same item. Do not go to a restaurant and charge it to a credit card and then pay the interest on your $21.00 lunch for a year or two.
J) work towards improving your credit score and keep it in better shape than before. This will determine if you pay 3% when you buy a home, car etc instead of 7% to 21%. I am sure you can do the math on this
k)Buy applying the items before you would be setting yourself for improving your finances greatly. Notice I did not say you have to be rich to do this. The only thing I say is you have to do it!. And Thanks be to God allowing our lives to improve.
Who is this supposed to help????
I am now certain the gov will never provide any assistance to those who keep them afloat by paying....and your solution here is to pour more "bad" money away for something that is NOT worth the money owed on it....
I happened to think is was this dumb a$$ thought process that put us in this hole to begin with....
One analyst reported that the bail out that the banks received would equal out to every mortgage holder receiving 362,000.00. Now wouldn't that do wonders for a recast. I'm sure that would pay just about every americans mortgage off with extra to start a business, stimulate economy, provide needed basic life necesities. Instead the banks paid themselves fat cat bonuses, some lost the money and have no records to where it went. Did very little for the american people. Where do these officials we hired come up with their ideas, by shaking the eightball? Just more of the same old thing, throw our good hard earned money down the pockets of the aristocrats (who channel it overseas in tax free bank accounts).
I've always stated that the american people haven't abolished slavery, just shifted it to include everyone. We think we elect officials to look out for our well being, instead we get officials keeping us (Americans) enslaved to the giant tax role. Pay pay pay as we give it away!
So, I get a $10,000 lump sum payment (assuming tax free) and spend hundreds with a greed filled BANK of PIGS to try and lower my mortgage payment.
So, lets say I have 25 years left on my mortgage. That is 300 payments.
$10,000 spread over 300 payments
Saves a whopping $43.00 averaged out.
So I could have $10,000 in my account as a safety net or I could give it all to the bank to save $43.00 per month.
Another high quality article...
I see some comments blaming people for spending more than they have with a large home, boats, etc but that isn't everyone who is struggling. Try living on one income, then DH loses cushy job, wife goes back to work after staying home with kids. We are living on 2 full time incomes now but still not as much as he used to make with one income AND take a hit on our modest home. Had savings and had to use on living expenses while DH out of a job. Only have one car payment or credit cards and still finding it hard to get by.
They should find a way to help those who have made payments steadily refinance at today's rates with possibly looser credit restrictions. I'm thinking of those who have always paid on time but don't have the loan to value equity the bank would normally prefer or have too much other debt. In my case, this would free up $394 a month on a 15 year loan or over $600 on a 30 year note. Because of a couple foreclosures in my neighborhood, my house would appraise for much less than I paid 10 years ago.
The rich criminals who control your government, and own our politicians (they own all of them from both parties) rigged the game.
Welfare for the rich is OK. Look, the government bailed out all the banks and big business. They still subsidize large corporations. Welfare for the rich is capitalism.
However, welfare for the average American is somehow wrong, they even call that communism.
Well, with the fall of the USSR, we know that communism by dictatorship does not work.
Now, with the new great depression, we know that American capitalism does not work.
We need something new, something that combines the best of both. Something that is fair for everyone.
Right now, this is not the United States of America but the Corporate States of America. Government for the Rich people by the Rich people. All average Americans are simply a resource to be exploited and then discarded when they can't bleed you anymore.
Paying a large amount of money into your upside down mortgage to reduce the payments a couple of hundred dollars per month, huh? That makes no sense. My experience as a mortgage originator is that if they are upside down on the mortgage chances are they have no "extra" money laying around. I dont think I have had one client I could talk into this kind of thing in the last 30 years.
What really needs to be done is eliminate all the meaningless forms and disclosures, and get a little common sense back into lending. It is taking lenders 3-4 weeks just to look through the disclosures on a loan before they even get to credit and pay stubs. Dodd-Frank Act must go as well as the socialist regime in the White House.
but if you have the money, isn't just doubling up on your monthly a cost-free way to reduce the principal?
generally, anything you pay over your monthly goes 100% into reducing the loan principal.