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Refinance and keep same low interest rate

Mortgage recasting is indeed a lesser-known but valuable strategy for reducing monthly mortgage payments. Let’s delve into John and Mary’s situation to understand it better:

John and Mary have a mortgage balance of $400,000 at an interest rate of 3.5%. Their current monthly payment, including taxes and insurance, is $2,254.

Now, Mary receives a significant sum of money from a relative – $75,000. John and Mary decide to use this windfall to pay down a substantial portion of their mortgage. Even after this payment, their monthly mortgage payment remains unchanged at $2,254.

However, here’s where mortgage recasting comes into play: Instead of the regular route of refinancing (which involves changing the interest rate and potentially incurring new costs), recasting allows them to adjust their monthly payment by reamortizing the loan with the same interest rate but based on the new lower balance.

With the $75,000, they choose the recasting option. By applying this sum towards recasting the mortgage, their principal balance shrinks to $325,000, and as a result, their new monthly payment becomes $1,917. This reduction in their monthly payment amounts to a savings of $337 each month.

Mortgage recasting is especially appealing for individuals who receive a lump sum of money and want to make a smart financial move. By recasting, John and Mary not only lower their monthly financial burden but also retain the same interest rate, resulting in a more manageable monthly payment. Moreover, they can use the extra money they save each month for other financial goals or investments.

It’s worth noting that, if John and Mary continue paying the original loan amount ($2,254) even with the lower monthly payment resulting from the recast, they will actually pay off their mortgage faster. This is an added benefit that helps them become mortgage-free more quickly.

In essence, mortgage recasting provides a unique and advantageous way to leverage lump sum funds to enhance financial flexibility, reduce monthly mortgage expenses, and potentially accelerate the journey to owning your home outright.

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