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.