The first question about recasting is not what it saves. It is whether your servicer offers it at all, because no rule obliges them to, and a good many do not.
Assuming it is available, it is still a different operation from a refinance. Both lower a monthly payment, which is why the words get used interchangeably, and mechanically they have almost nothing in common.
What a recast does
A recast keeps your existing loan. You pay a lump sum against the principal, and the servicer recalculates the scheduled payment against the reduced balance, using the same interest rate and the same maturity date as before.
Afterwards you have:
- the same rate you had before
- the same payoff date you had before
- a lower monthly payment
No new loan is originated. There is no appraisal, no credit check and no closing costs in the sense a refinance has them, though servicers typically charge a processing fee of a few hundred dollars.
What a refinance does
A refinance pays off the existing loan with a new one. The new loan has its own rate, its own term starting from zero, its own underwriting and its own closing costs. Your payment changes because essentially everything has changed.
That is the real distinction. A recast adjusts a loan you already have. A refinance replaces it.
The comparison nobody shows
If you have a lump sum and your servicer permits a recast, there are two sensible things to do with it, and almost every calculator shows only one.
Take a balance of $250,000 at 6.5% with 300 months remaining, and a lump sum of $50,000.
Recast. The balance becomes $200,000 and the payment is recalculated over the remaining 300 months at 6.5%. The payment falls, and the loan still matures on its original date, 300 months out.
Pay the lump sum and keep paying the old payment. The balance becomes $200,000, but you continue paying the larger original amount. The surplus attacks principal every month, so the loan clears years early and the total interest is lower than the recast produces.
Both are legitimate. The recast buys monthly cash flow now. Keeping the payment buys a lower total cost later. Which is worth more depends on your situation, and that is not something this page can judge, so our recast calculator computes both and names the difference rather than picking one.
Availability is the real constraint
No rule requires a lender to offer a recast. It is servicer policy. That has practical consequences worth knowing before planning around one:
- Many servicers set a minimum lump sum, often $5,000 or $10,000, or a minimum resulting reduction in principal.
- Government-backed loans, including FHA and VA, generally cannot be recast.
- The servicer sets the fee, and the servicer decides the timing.
So the first step is not arithmetic. It is asking your servicer whether a recast is available on your loan at all.
Where the rules are
Because a recast is contractual rather than statutory, no regulation defines it. What is regulated is the disclosure around your mortgage, under Regulation Z, 12 CFR 1026, and the Consumer Financial Protection Bureau’s glossary of mortgage terms defines the vocabulary your servicer will use.
The arithmetic itself is the standard amortisation formula applied twice: once to the original balance and once to the reduced one. That is mathematics rather than regulation, and saying so is more useful than pointing at an agency that does not govern it.
Questions
- Does a recast change my interest rate?
- No, and that is the defining feature. A recast keeps the existing loan, its rate and its maturity date, and only recalculates the payment against a reduced balance. If your rate is lower than what is currently available, a recast preserves it where a refinance would give it up.
- Can I ask for a recast on any mortgage?
- No. Nothing obliges a lender to offer one. It is servicer policy rather than statute, so whether it is available, what lump sum it requires and what it costs are all set by your servicer. Many require a minimum lump sum, charge a fee, and exclude certain loan types outright.
- Is recasting better than just paying the lump sum?
- They are different outcomes and this site does not rank them. Paying the lump sum without recasting keeps your payment where it is, so the loan clears early and the total interest is lower. Recasting lowers the payment and keeps the original maturity date, so it buys monthly cash flow and saves less interest. Our calculator shows both figures side by side.
- Why would anyone choose a recast over a refinance?
- Usually because the existing rate is better than what the market is offering, or because the costs and credit requirements of a new loan are not worth it. A recast is normally a few hundred dollars and does not require requalifying. A refinance is a full origination with closing costs and underwriting.