Home loan recasting was a fresh concept for Suzie Stafford, Vice President of Real Estate Lending at Lubbock National Bank. Stafford has been working with loans for 20 years.
“I have been in Real Estate Lending for some time. I’ve only heard this term used once over the last year. Before that I had never heard of it at all,” Stafford said.
Stafford explained recasting involves applying a significant lump sum to the principal of a mortgage.
“Recasting would enable someone to make a large principal reduction on their mortgage loan. Then their payment would be recalculated according to the remaining balance on the loan,” Stafford said.
That lump sum can come from a variety of sources.
“If they had an inheritance or even a tax refund, just some kind of a windfall from any source,” Stafford said.
Stafford said what’s considered a “large sum” varies from bank to bank, but it’s definitely more than spare change.
“I think for it to benefit someone they would need a pretty good sum of money, depending on what their mortgage balance might be,” Stafford said.
Benefits of recasting include paying off the loan sooner and using increased cash flow to invest.
“The best thing it could do is reduce your monthly payments,” Stafford said.
However, she warns there are drawbacks to consider.
“Probably there would be some fees associated with that type because there could be paperwork associated with adjusting the payment,” Stafford said.
Additionally, recasting doesn’t lower interest rates or reduce the payment period.
“Your term would stay the same on your note. It wouldn’t shorten the length of the mortgage,” Stafford said.
Stafford said loan recasts are rare in Lubbock in part because not all loans are eligible and requirements vary bank to bank.