When to refinance a mortgage or recast it

How do you know when to refinance a mortgage?

How do you know when to refinance a mortgage?

How do you know when to refinance a mortgage? I’ve refinanced twice over the past three years. Why? Because not refinancing didn’t make a whit of sense. I was planning to be in my house long enough to recoup the closing costs on each of the transactions. That was all I needed to know. The first digit of my mortgage interest rate (and yes, I’m bragging a little) is a 4. Even a few years ago, that would have seemed unbelievable.

Maybe it’s time for you to refinance as well. Some banks even offer a refinance analysis. It’s likely the heftiest line item in your budget, which means lowering that bill just a little can free up some much needed cash. Mortgage rates are incredibly low right now—averaging in the 4 percent range, so my rate isn’t out of reach for you—and for many, that means a refinance is in order. To determine if you’re a good candidate for a mortgage refinance, you need to crunch some numbers. Start by answering three questions: How much is your current monthly payment? How much will your new monthly payment be? And how much are the closing costs?

Once you have those figures in front of you, you can subtract the refinanced monthly payment from your current monthly payment, and divide the closing costs by the result. That will tell you how long you need to stay in the home to recoup the cost of closing—and actually save money on the refinance. If you’ve decided to go ahead, do your research and read the fine print. Talk to an expert on how to refinance. However, if your are planning to move before you can recoup the closing costs then, stick with your current mortgage.

If you find you can’t refinance, you may be able to recast the mortgage instead. Also, if you’ve already done so, and want to knock your payment down even more, recasting a mortgage is a perk offered by some lenders in certain states— you’ll have to make a phone call to see if your state is among them— that allows you to pay down a chunk of your principal and a small fee to the lender. The amounts required will vary by lender, but generally you’ll put at least a few thousand dollars (and sometimes more) toward principal and pay a couple hundred dollars as a service charge to the lender. You don’t have to apply for a new loan or go through the appraisal process.

Finally, whether you employ these strategies or not, consider making an extra payment on your loan each year (or whenever you have some extra cash). It will save on interest and help you pay off your loan faster. Take a $200,000 30-year fixed loan with a 5% interest rate. Over the life of the loan, you’ll pay over $186,000 in interest alone. But make one extra payment each year—that’s about $1,000, or less than $100 a month—and you’ll pay the loan off four years earlier and save over $30,000 in interest.

Is refinancing something your considering or have you refinanced recently?

Jean Chatzky

About Jean Chatzky

Jean Chatzky, the financial editor for NBC’s TODAY show, is an award-winning personal finance journalist, AARP’s personal finance ambassador, and a contributing editor for Fortune magazine. Jean is a best-selling author; her eighth and most recent book is Money Rules: The Simple Path to Lifelong Security. She believes knowing how to manage our money is one of the most important life skills for people at every age and has made it her mission to help simplify money matters, increasing financial literacy both now and for the future. In April 2013 Jean launched Jean Chatzky's Money School , a series of college-style, interactive online personal finance courses that give men and women across the country the opportunity to learn from and interact directly with her. Jean lives with her family in Westchester County, New York.
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18 Responses to When to refinance a mortgage or recast it

  1. Shanita says:

    Refinancing was a financial benefit for me too. I love to brag about my 4 point something rate. It’s a great feeling to know that I had an opportunity to take advantage of the low rate environment. This has freed up cash and allowed me to invest toward other goals.

    MODERATOR’S NOTE: Just so you know, Shanita is a Wells Fargo team member. The views she’s expressing here are hers alone and don’t constitute an official position taken by Wells Fargo or Wachovia. Please see our Community Guidelines for more information!

  2. Cheryl says:

    Appreciate the information. I have been considering whether to re-finance again and wasn’t sure how to decide whether to go forward.

  3. Jay says:

    Historically, what is the lowest mortgage rate in the past 40 years?

  4. Petunia 100 says:

    I thought that re-casting meant your new lower balance (after your lump sum payment) is re-amortized over the remaining life of your loan.

    How can the interest rate be changed without recording a new note?

    I have a Wells Fargo mortgage. What is Wells Fargo’s policy regarding re-casts?

    Thank you.

    • Lisa Ardrey Lisa Ardrey says:

      You are correct – we made an error in our “Do You Need a Motgage Do-Over” posting which Petunia 100 promptly brought to our attention. There is no lowering of an interest rate with a recast – the only way to lower your interest rate is to refinance your loan. Your loan documents will outline both the recast and refinancing options on your Wells Fargo Mortgage. We sincerely apologize for any confusion that this may have caused!

  5. Petunia 100 says:

    My comment from Saturday is still awaiting moderation, but I went ahead and called Wells Fargo to ask my questions.

    I learned that Wells Fargo’s recast policy is that there is no minimum to paydown, and the fee is $250. If I want to do a recast, I need to call and inform them, they will mail me a letter with instructions.

    I was also told the only way to lower the interest rate is to do a refinance; there is no lowering of the interest rate with a recast. I think you should edit this blog post as it contains incorrect information regarding a lower interest rate via a recast. Otherwise, it is good information.

    • Lisa Ardrey Lisa Ardrey says:

      Hi Petunia. You are correct there is no lowering of an interest rate with a recast – the only way to lower your interest rate is to refinance your loan. Thanks for catching this and bringing it to our attention, we appreciate it.

  6. Alan says:

    Can anyone post a calculator for recasting?
    I would like to see what the monthly payment would be after applying 15,000 to the principle?

  7. Philip says:

    I currently have a Wells Fargo mortgage. The investor is Ginnie Mae (GNMA). I would love to do a recast but was told that I cannot since it is a Ginnie May mortgage. Is this accurate? If so are there any other options other than a refi? I do not want or need a refinance.

  8. Kristen says:

    Hello, I have a Wells Fargo Loan and I wanted to recast/re-amortize my current Mortgage Loan. Does anyone know what department Handles that or has a good Phone number to reach them?
    Thank you
    Kristen

  9. Bill says:

    I want to recast my Wells Fargo mortgage. When I called the customer service number to get more information, they transferred me to a number for the “Land Transactions Department.” The voice mail at that number said I could leave a message and would be called back within 24 hours. It didn’t happen. Any advice?

    • Lisa Ardrey Lisa Ardrey says:

      Bill, if you can provide me with your email address I can get you to the appropriate folks. You can reply to this post and I will take your address from there but not post it to the site. Thanks…

      • kirby says:

        Hi Lisa,

        I have a contract on a 25 acre property, but have been unable to close as the road to it does not have the easement deeded on the survey.

        All adjacent property owners have signed off on granting the easement, except Wells Fargo which has a lien on one of them.

        Wells Fargo has indicated which form and wording they need, and that has been provided.

        However, buyer and seller still await Wells Fargo approving the form and returning it to the title company.

        It has been in this waiting pattern almost 6 MONTHS.

        How can I locate the agent in charge of this to return the approved form?
        to :

        Lori Samantham
        Texas Country Title
        112 West Second
        Cameron, Texas 76520
        254-605-0140
        254-605-0200 (Fax)

        Thanks!
        Kirby Reed
        Texas

        • Lisa Ardrey Lisa Ardrey says:

          “Hi Kirby! We’d like to get you connected with our support team so we can research and try to help. Can you please email us at socialcare@wellsfargo.com with your request? Please include the details regarding your request, your phone number and mention you were referred from the Beyond Today Blog. ~ Kind regards”

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