In another topic about pro's and con's of paying off your mortgage, I mentioned the system of recasting. Well, not much responses followed but I skyped with a few American friends and did some investigation. I think recasting is especially interesting for Mustachians who like a bit more flexibility but also peace of mind.
What I found out:
- Almost all big financers offer recasting of loans and mortgages, you have to ask them personally about it, but it can be done without costs or with very minor fees like 6 dollars!
- In my situation, recasting is done automatically with every extra payment I make.
Recasting
- When paying off an extra amount above your minimum monthly payment, a new 'minimum' monthly payment is calculated instead of shortening the mortgage period.
- Example: 200k mortgage, monthly payment of 900. 30 years. End date in 2044.
- Extra payment of 5000 towards the principal
- New minimum monthly payment is recalculated to 868 per month
What I like about it is that I can throw a few hundreds or thousands here and there towards the mortgage untill a monthly payment will give me enough peace of mind*. At the moment, I invest monthly and pay off towards the principal every 4 months.
Your thoughts?
* Enough peace of mind for me = I think a monthly minimum payment of 450 euros per month or the equivalent of subsidized low cost housing.