What is mortgage recasting?

What is Mortgage Recasting? | Ask The Broker

Mortgage Recasting can help lower mortgage payments and can be a great option for retirees.

Broker/Owner Kathy Sperl-Bell invites Pete Green from US Bank Home Mortgage to explain mortgage recasting. Watch to see why Mortgage Recasting could help retirees make a smooth transition when selling thier current home a moving into their retirement home.

Kathy Sperl-Bell: What can you tell me about mortgage recasting? Hi, this is Kathy Sperl-Bell at Active Adults Realty in Delaware, and today, we are very fortunate to have back with us Pete Green.

Pete Green:     Hi, there.

Kathy Sperl-Bell:  Our mortgage sales manager for US Bank Home Mortgage here in Rehoboth Beach area. Let me start by asking Pete, exactly what is recasting the mortgage?

Pete Green:     The short version.

Kathy Sperl-Bell:  The short version.

Pete Green:     A recast is a tool when you, a mortgage lender services a loan. You can send a large principle payment in and say, “Recast my note,” so what they do is adjust your payment to match the new lower balance after the principle payment.

Kathy Sperl-Bell:  Let me talk about some of our clients.

Pete Green:     Sure.

Kathy Sperl-Bell:  They’re looking to buy a new home here in Delaware. They can qualify for a mortgage. They still have a home to sell, New Jersey, New York, Connecticut.

Pete Green:     Yup, very popular.

Kathy Sperl-Bell:  Their preferences, once they’ve sold their home, have a certain small mortgage amount on their new home.

Pete Green:     Yup.

Kathy Sperl-Bell:  Talk about how recasting helps them buy a home without selling their home, and how that plays out.

Pete Green:     Yeah, so it’s a perfect tool for that kind of customer, and so what happens is, in that situation, the customer wants to move forward with a nice home that they found. Why? Because they found that home that they love.

Kathy Sperl-Bell:  Exactly.

Pete Green:     But, they’re still living in the old one, aren’t ready for retirement, many different scenarios, so what happens is, we move forward with the new transaction, close on that home, with the minimal down payment, whatever, and we can be flexible to help them with that, but whatever they can come up with. Then let’s say one, two, three, five years down the line, the customer sells their old home, which is maybe somewhere else, and then they have this cash windfall, so that let’s say it’s $100,000, and the mortgage they took from me two years ago was $300,000, but ultimately they don’t want a $300,000 mortgage in their retirement years. What they do is they send us the $100,000, or whatever the amount is that they want to contribute. We then adjust the loan amount, of course, down by $200,000, and then recast the note, so that the payment now matches the 200 instead of the 300. You’re effective, they’ve gotten the home they wanted at a price three years better on price, right, and they got to have a nice, smooth transition. They didn’t have to do the moving truck from one place sitting outside settlement.

Pete Green:     There’s so many benefits, and then they ultimately ended up with a payment that they desired.

Kathy Sperl-Bell:  Until this program was available, the only other option was to refinance.

Pete Green:     Yes, so and in the old days, there were bridge loans, but those don’t … They don’t exist anymore.

Kathy Sperl-Bell:  They don’t exist, right.

Pete Green:     Because they’re risky, so basically a refinance, the customer would have to pull their equity out, and then increase that mortgage payment while they have this other new mortgage payment, right, and the cost of that refinancing probably ate up somewhere between three and $4,000 in equity, because that’s how much. Refinances are expensive, and 95% typically, the customer rolls in the closing costs, so then when they go to sell that home, they have $5,000 less. Yeah.

Kathy Sperl-Bell:  Right, so recasting is the simplest process, the least expensive process.

Pete Green:     By far.

Kathy Sperl-Bell:  What I learned just recently, you can actually do it several times.

Pete Green:     You can.

Kathy Sperl-Bell:  Over the course of the loan.

Pete Green:     Absolutely, so let’s say someone in their retirement years, for instance, they might have a cash windfall when they sell a property, but then they might have another one when, let’s say, retirement assets become available at certain age categories, right, so-

Kathy Sperl-Bell:  Then they have to start taking distributions.

Pete Green:     Right, maybe they’re required to, or maybe, and some of those accounts are funny, and some of them free up at age 70, and age 59 and a half. Maybe they say, “Well, I now, I really … I don’t want to pay my mortgage off, but I don’t really like a $1,500 payment. I’d like more like a $600 payment.” Perfect opportunity for a recast, so if they have the assets available, they’re not going to need those assets to fund their pension, or annuities for so many years. They can use that cash to recast their note.

Kathy Sperl-Bell:  We could go on for probably an hour with the details.

Pete Green:     Yeah. Absolutely.

Kathy Sperl-Bell:  I think the point we’re trying to make is there are options. Recasting is a really great tool that allows a smoother transition, as Pete said, instead of trying to do everything in one fell swoop. I want to sell that house, and buy that house. It gives you choices that you can spread out over a period of months, or even years. One thing I want to go back to, not all lenders offer this program. It has to be a lender who is a bank, or a lender who services their own loans.

Pete Green:     Keeps them.

Kathy Sperl-Bell:  Because think about it. So many loans are sold, and you don’t know who they’re going to be sold to, and whether or not that program will continue to be available.

Pete Green:     Exactly. Yeah. They could get themselves in trouble where the lender they originated with said, “Oh, yeah. We’d do that,” and then a year later, they sell the loan to someone who doesn’t recast, so that can be a little tricky.

Kathy Sperl-Bell:  Exactly.

Pete Green:     Yeah.

Kathy Sperl-Bell:  Again, we just wanted to bring you this information. We do get a lot of questions about the various ways people can proceed with their retirement plans, in a smooth and less stressful manner.

Pete Green:     Much less stressful. Yup. Yeah.

Kathy Sperl-Bell:  Again, thanks, Pete.

Pete Green:     My pleasure. Thanks for having me.

Kathy Sperl-Bell:  Hope this was helpful, and as always, if you have more questions, you can email me, Broker@ActiveAdultsRealty.com, and Pete’s always available.

Pete Green:     Always. Thank you so much.