Author Topic: Buying a new home - recast option for mortgage?  (Read 1584 times)

trout14

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Buying a new home - recast option for mortgage?
« on: July 12, 2015, 06:14:10 AM »
We just went under contract for a home and are very excited about it. We are working with two different lenders and have not finalized who we will go with yet. One of those lenders offers a recast option. Our scenario is that we are going to move into the new home then sell our current home. We have a few options, a traditional 30 year and a 2nd heloc, a jumbo loan at traditional rates, and some other options. I am wondering if it is worth picking one lender over the other to have that recast option. Either way, our current equity would pay off the second right away. With the recast option the remainder of the equity would go towards the first and I think that is what would make the recast option valuable. Looking for suggestions or for people who have gone through this.

BlueHouse

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Re: Buying a new home - recast option for mortgage?
« Reply #1 on: July 12, 2015, 06:38:54 AM »
I'm planning on recasting later this year, but I wouldn't select a mortgage lender based on recast terms. What happens if they sell the note before you recast ?  Any guarantee that they won't? 

Wells Fargo offers free recast, but I can only do it once over the life of my loan, so I'm waiting a few months until I have enough that I want to protect it.

forummm

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Re: Buying a new home - recast option for mortgage?
« Reply #2 on: July 12, 2015, 06:50:44 AM »
Without the recast would you have trouble making the payments? Otherwise I'm having trouble seeing why a recast is a good idea. You can still make a large payment to principal when you sell your current house. And that would dramatically reduce the interest accruing each month. So you would payoff the house much faster (and pay less interest overall) if you do not recast.

Another option is to just invest the money instead of putting it to your mortgage. What will the interest rate be on the 30 year fixed?

BlueHouse

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Re: Buying a new home - recast option for mortgage?
« Reply #3 on: July 12, 2015, 08:00:57 PM »
Without the recast would you have trouble making the payments? Otherwise I'm having trouble seeing why a recast is a good idea. You can still make a large payment to principal when you sell your current house. And that would dramatically reduce the interest accruing each month. So you would payoff the house much faster (and pay less interest overall) if you do not recast.
If you follow what you've described here, you're simply prepaying the mortgage.  The downside is that if something happens in the future where you experience can flow problems, the borrower is still on the hook for high monthly payments AND your cash is tied up in the house.
If instead you recast, your monthly required payments are lower, but you can still make larger monthly payments if the cash is available. Recasting in this example simply reduces the borrowers risk of default.