Transcription
Most people with a mortgage are overpaying every single month. And I want to tell you about a woman named Sandra.
See, Sandra and her husband bought their very first home in 2019 for $320,000. It was your standard 30-year mortgage at 3.8%. Their monthly payment was $1,491.
Over the next 3 years, they did everything right. They made the principal payments whenever they could. And on top of that, they made extra principal payments, you know, through a tax refund here, a bonus there, and any extra money left over at the end of the month. By 2022, they had paid down an extra $40,000 in principle, and their monthly payment was, of course, still $1,491.
But Sandra, she was a little bit confused, so she called her lender to ask why. I mean, she paid down an extra $40,000. Why can't her payment be any lower?
Well, her lender explained, "Well, that's how mortgages work. See, extra payments reduce your balance and your interest over time, which is great, but they don't lower your required monthly payment. Unless," the lender said, almost as if it was an afterthought, "you request something called a recast."
Now, Sandra had never heard of that word before, and unfortunately, neither had I at the time, and I paid off my entire mortgage without ever knowing this existed, and if I did, I would have saved thousands of dollars. Sandra is not unusual. The average monthly mortgage payment across all outstanding US home loans, hit $2,050 in the fourth quarter of 2025, the first time in history that number has crossed $2,000 a month.
And here's the thing that makes it worse. About 70% of existing US mortgages carry interest rates below 5%. Which means that refinancing, the only tool that most people know about, makes almost no sense for homeowners right now. I mean, who would want to trade a 3 or 4% rate for today's rates in the mid-60s?
If your payment feels a little too heavy and refinancing is off the table, what do you do? You do what Sandra did. You ask your lender about a recast.
And here is what a mortgage recast is. You make a lump sum payment toward your principal balance. And then your lender will take that new lower balance. And what they do is they recalculate your monthly payment and it'll stay at the very same interest rate with the same remaining term and the same loan. Only your monthly payment will change. It'll go down. That's the whole thing.
Now, here's the part that surprises most people. Making extra principal payments on your own does not lower the monthly payment. And if you have a big loan, that could take a long time to really reap any benefits out of it. A recast changes that. You make the lump sum of the bonus, right? Whatever that money is, and then you formally request a recast. Your lender will recalculate and from that point forward, you owe less money every month. And the cost, well, it's only a processing fee, usually about $150 to $400, all depending on your lender. No appraisal, no credit check, nothing like that, no new loan, and no closing costs.
So, you might ask, well, why doesn't the bank or the mortgage company, whatever, tell us about this option? Well, because quite honestly, there's almost nothing in it for them. A recast means that you pay them less money every single month. And that's not something that a lender is going to advertise, but now you know it exists.
But let me show you what it looks like in real numbers. Let's say you have a $400,000 mortgage at a 4% interest rate. You're 5 years in and your current balance is $365,000. Your monthly payment $1,909. You come into, let's use the same figure, $50,000. Maybe it's a bonus or an inheritance or you've been quietly saving up money, whatever that might be, right? Whatever. You apply that number as a lump sum on your principal. Now, without a recast, your balance is now $315,000, and your payment is still $1,909. With a recast, your lender recalculates on a $315,000 balance at the same 4% over the same remaining 25 years. Your new monthly payment is now $1,661. Now, that's $248 a month freed up, which equals $2,976 a year. And the cost to unlock it, let's say it's mid-range at the processing fee of $250.
Now, let's scale it up. $500,000 mortgage with a 3.5% rate, 25 years remaining. You put in $150,000. Without a recast, that payment will stay at $2,502. With the recast, payment drops to $1,751. Now, that one's a big one because that one saves you $751 a month. $9,012 a year. And all it took was a phone call and a processing fee, hopefully no more than $400.
And I want you to sit with that for a second because the question isn't, "How much does my payment drop?" The question you need to ask here is what do you do with that money now that it's going to be freed up? That's the big thing and I'll come back to that in just a minute because the answer is where it's going to get very interesting.
But there's a catch you need to understand too. It's interesting how the financial world has this habit of hiding useful stuff. The tools that actually help the most people don't get advertised because there's no commission. There's no money to be made on a recast. So why bring it up in the first place? But that's what this channel was all about because I want you to have the choice that you actually have in front of you that some of us didn't have.
But back to the question I left open. Who actually qualifies for this entire thing? Let's make it simple. I'm going to ask you three questions. If you're interested in a mortgage recast. One, what kind of loan do you have right now? If you have a conventional loan, which is backed by Fannie Mae or Freddie Mac, you most certainly qualify for recasting. If you have an FHA, VA, or USDA loan, you don't unfortunately qualify. Those are federally backed mortgages and they are not eligible.
Question two, are you current on your mortgage payments? Recasting is not a hardship program, so your loan does have to be in good standing and caught up.
Question three, do you have a lump sum available? Most lenders require a minimum of $5,000 to $10,000 to process a recast. Some set it as a percentage of your remaining balance. The more you put in, the more your payment will drop.
So, if you answered yes to all three of those questions, here's what you can do today. First, call your mortgage servicer, whoever you make your monthly payment to, and ask them a very simple one question. Does my loan qualify for a mortgage recast, and if so, what are your requirements? And you're going to want to write down four things. The minimum lump sum required that they require, the processing fee, how many times per year you can recast, and how long it takes. It's typically 45 to 60 days on average, but that's just one phone call, about 10 minutes, and you'll know everything you need to know to make the right decision for you.
So, what is the difference then between a recast and a refinance? Now, of course, the first thing is the rate. If you have a low rate, this is a great way to take advantage of some payment modifications without getting a higher rate. But the cost on a recast is about $150 to $400 versus a refinance could be anywhere from like $4,000 up to $12,000 or more. Credit check is not needed on a recast, but it is on a refinance. Appraisal is not needed on a recast, but it is on a refinance. And like I mentioned, your interest rate will stay the same. Whereas with a refinance, you will get a new rate, whatever the going rate is for the market. The loan term will stay the same. So if you have 15 years left and you recast, you'll still have 15 years left. Now, on a refinance, it will reset to whatever you select, either a 15 or a 30-year loan. The monthly payment on a recast will go down. And with a refinance, it should go down if the rate improves and you're not taking out any home equity loan. The time to complete for a recast is about 45 to 60 days versus 30 to 60 days for a refinance.
So, you might ask, well, when does a refinance really still make sense? Well, if you can get a meaningful lower rate right now, dropping from like, let's say, like a 7% to a 5.5% or better, a refinance might make sense depending on how long you plan to stay in your current home. But for 70% of the homeowners, carrying rates below 5%, refinancing means trading a lower rate for a higher one, and you will not come out ahead. And for that group, the majority of American homeowners right now, recasting is really the only tool that will lower your monthly payment without costing you the rate that you already locked in. Your bank knows this. They're just not going to bring it up.
Now, here's a catch that you need to understand. Recasting does, and this is very important, it does reset your amortization schedule, which means if you are far into your mortgage, every base payment now goes toward the principal versus the interest. For example, if you look at this fancy little sheet, it shows that you're paying more toward interest in the very beginning of the mortgage loan. And as the years go by, more of that monthly payment will then go toward the actual balance, the principal. This is typical, of course, you know, called an interest front-loaded mortgage. Most mortgages operate this way. So, just keep that in mind.
For those of us who want mortgage freedom, which by the way, let me know if you're in that club of paying down the mortgage and getting rid of it down in the comments below. Well, taking advantage of recast gives you more power even despite the reset to pay down your principal balance a little bit faster in most cases. So, just keep that in mind if you're going to be resetting back with the higher interest rate.
Now, I owe you an answer. What do you do with the money once your payment drops? Let's say your recast frees up $300 a month. Conservative example, you invest that $300 every month at a 10% average annual return of the S&P 500 stock market over 20 years is $228,000 from $250 in one phone call.
But here's what I really want you to think about. A lower mortgage payment doesn't just free up cash to invest. It frees up optionality. When your fixed costs go down, your choices go up. You can take a different job because you freed up some monthly expense, you can build an emergency fund a little bit faster, you can absorb a bad month without panic. This is what financial freedom actually looks like in practice, even if you're not per se financially free. It's not a number in an account. It's really a space between what you earn and what you owe. Recasting will widen that space.
And I paid off my mortgage in 2022 and then decided to leave my corporate career in 2026. Those two decisions are connected. When the mortgage was gone, the calculus on everything else really changed. And that is what I want for you. Not just a lower payment, but options that come with it. Even if you don't want to pay off your mortgage early, you still have options by giving yourself a little bit more breathing room in your everyday expenses and your monthly expenses.
If that's the kind of thinking that resonates with you, the system behind the decisions, not just the decisions themselves, hit subscribe now. Have you heard about recasting before? And have you done it personally? If you have, let us know down in the comments and let us know how it's going. Your financial adventure is going to continue by checking out this video up here next. Keep building your sharp money and I'll see you on the next.