Recasting a mortgage loan - question on strategy

[Christopher Pound]

Hi everyone,

New investor here, relatively new poster, longtime lurker, lover of all things RE. I have a question about recasting of a mortgage loan, for any of you financing experts out there.

Acquired my first 2 rental properties last year, and the original plan was 1 property/year to start out. After running into some financial issues, looks like my 2019 purchase is my own primary residence. We're downscaling into a smaller home, which we picked up from another investor who got it as a foreclosure. It stank =) but we're really fixing it up nicely.

The plan is to hold 2 properties for a couple of months (mortgages on each) until the timing is perfect to sell our current primary residence which we'll put up starting sometime in April. Also gives us some time for rehab on the new one. To facilitate this, we got a mortgage loan that can be recasted. When we sell our current home a couple months from now, we'll put any profits into recasting the mortgage for our new property, with the idea of making the monthly payment as small as possible.

My question is this...

Any thoughts on getting a HELOC on the new property, using it to immediately pay down the mortgage loan on that property, then recasting that loan on a much lower total? I'm not very familiar with how recasting works, so I don't even know if we CAN recast it with a 2nd taken out on the property. My thought though is that with a much smaller monthly amortized amount on the first mortgage, we can pay down the HELOC pretty quickly then take advantage of lower monthly payments for the next couple of decades.

Whatcha think? And thanks for taking the time to read.

[Christopher Pound]

Well here is what I found out so far...

I can recast 1ce only throughout the life of the loan. I can also open a HELOC and use those funds in the recasting process.

My understanding how it works is that I would set aside any extra funds I want to use in the recasting process in a separate bank account. When the times comes I want to recast, I would communicate with my mortgage lender and let them know I want to recast. They would then let me know how to apply the funds I've set aside to lower the monthly payment after the recast. Once it's done, it's done.

What I don't want to do is take my extra funds and immediately pay off principle on the back end of the loan, then expect to recast based on the new principle balance. In that scenario, there would be no funds to use in the recast process... rather, I would simply have a lower principle balance with the same amortization. Essentially there would be nothing with which to recast.

When the time comes I actually am ready and do recast my loan, I'll follow up here if the process is different than my understanding that I've outlined above.

Hope this info is useful to someone. ;-)