How a recast works
A recast lowers your monthly payment without a new loan. You send your servicer a lump sum toward principal, and the servicer recalculates the payment so the smaller balance still pays off on the original date at the original rate. Because the rate and end date do not change, the new payment is simply the standard amortizing payment on the new balance over the months you have left.
The calculator does exactly that: new balance = current balance minus lump sum; new payment = the fixed payment that pays off the new balance, at your rate, over your remaining months. The drop is the old payment minus the new one. Dividing the recast fee by the monthly drop tells you how many months it takes for the lower payment to cover the fee.
Three ways to use the same lump sum
A recast is one of three choices for spare cash, and the calculator compares them side by side:
- Recast: lower required payment, same payoff date. You save interest because the balance is lower.
- Prepay without recasting: send the lump sum and keep paying the old amount. The loan ends years early and you save the most interest, but your required payment does not go down.
- Refinance: replace the loan with a new one. The CFPB notes that a refinance means a new loan with a new term and many of the same costs you paid the first time, so it only pays off if the new rate and term save more than those costs.
Worked example
You owe $400,000 at 6.75% with 27 years left, so your principal and interest payment is about $2,686. You have $50,000 from a bonus and your servicer charges a $250 recast fee.
| Option | Monthly P&I | Paid off in | Interest left |
|---|---|---|---|
| Do nothing | $2,686 | 27 yrs | ≈ $470,400 |
| $50,000 + recast | $2,351 | 27 yrs | ≈ $411,600 |
| $50,000, keep paying $2,686 | $2,686 | 19 yrs 8 mo | ≈ $282,200 |
| $50,000 + refinance at 6.0%, 27 yrs | $2,184 | 27 yrs | ≈ $357,600 + $6,000 costs |
The recast cuts the payment by about $336 a month and covers the $250 fee within the first month. It saves about $58,800 in interest compared with doing nothing. Keeping the old payment instead saves about $188,200, roughly $129,400 more, but you are locked into the higher payment. If you could refinance at a meaningfully lower rate, that beats both in this example, even after closing costs; if current rates are higher than yours, a recast keeps your existing rate.
When a recast makes sense
- You want a lower required payment for cash-flow safety, but you like your current rate.
- You bought a new home before selling the old one and want to apply the sale proceeds to the new mortgage. (See buying and selling at the same time.)
- Refinancing would mean a higher rate or closing costs you cannot recover.
Edge cases
- Prepayment penalty: the CFPB says a penalty can sometimes apply if you pay a large amount at once early in the loan. Check your note before sending a big lump sum.
- Adjustable-rate loans are recalculated at each reset anyway; this calculator assumes a fixed rate.
- Escrow: taxes and insurance are not affected by a recast and are not included here.
What to do next
If you would rather shorten the loan, use the extra mortgage payment calculator. To test a new loan instead, try the refinance break-even calculator and read when refinancing is worth it.