Recasting - A tool you didn't know you had!

[Paul Wurster]

I got a bunch of responses on a different thread when I posted about recasting so I thought that I might contribute to Bigger Pockets community as a whole.

Recasting a mortgage is simply reamortization after paying down substantial amounts of principal on a fixed rate loan. Instead of continuing with the same payment for a new shorter period of time, the bank reflows the mortgage to be paid over the original term and interest rate but now with a lower payment. Until it was suggested to me by a great mortgage broker, I never knew it existed, and most people that I have talked to don't know about it either.

I used it after leaving my primary residence in California. I had a standard 30 year fixed rate mortgage with Wells Fargo. I had sold a rental house in another state, and I used most of the proceeds to pay down the mortgage. Of course, this took time off of the mortgage, but it didn't lower my payment. Two years later, I had to move for work, and I left the house as a rental. Regretting the fact that I no longer had access to the cash, I attempted to refinance. It was possible, but now it was an investment property so the rates were higher and the value was dropping. After I heard about recasting, I called up Wells Fargo. I had to call a few times to finally get someone who was competent, but it was very easy after that. I think there was a $200 fee and a stipulation that I could only do this once every year or two. There was also a requirement to pay down at least $10,000 or some percentage of the loan. After the change, my payment dropped $200/month. This has allowed several years of easy cash-flow.

I hope this helps someone.

[Cynthia Pham]

@Tracy T.

All of the big banks offer this. It has been around for a while but it’s more known in the Bay Area where our tech workers often recast when their RSU vest or they get their large bonuses. Each bank does it differently. Wells Fargo doesn’t charge a fee, you can recast as often as you like, but we require a minimum of 20k at one time towards principal each time you want to recast.