In today’s market, inventory is low, so when a great house comes on the market, buyers must act quickly. This means you also have to be able to sell your house fast. We spoke with Lisa West of Movement Mortgage about a mortgage tool called “recasting” the mortgage that can take the fear out of buying before you sell your current home.
If your plan is to buy and later sell your home, your concerns may revolve around how to pay down your mortgage when you finally do sell your home without paying the refinancing fees. Mortgage recasting is the process of reducing the mortgage balance on your new home through the large lump-sum payment you can make when you sell your first home. Once you make the large principal payment and reduce your mortgage balance, your lender will amortize your loan as if you had always had a lower starting balance. Mortgage recasting does not change your loan term or your interest rate, but you will have a lower monthly mortgage payment.
When the lender recalculates the loan, they will create a new amortization schedule, which is a table of loan payments showing the principal and interest that comprises each payment until the loan is paid in full. This will reduce your monthly payments. Conventional loans and some jumbo/portfolio loans can be recast. Government loans (FHA, VA, USDA) cannot be recast.
Basically, if you can’t sell your current house first, recasting allows you to make a minimal down payment on your second house (the house you want to buy) and then once you’re able to sell your current house, you can put that money from the sale back into the loan on your new house and re-amortize the loan without paying to refinance the loan or changing your rate.
Here’s what the recasting process will look like: First, contact your lender to determine your eligibility. Not all lenders offer mortgage recasting, so it’s important to confirm availability with your lender before setting aside funds. When you’re ready to proceed with the recasting process, submit a formal request to your lender. Note that many lenders charge a fee of up to $500 for recasting, but this fee varies. Follow the instructions the lender provides for recasting. Continue making payments. After recasting your mortgage, your monthly loan payment will be lower based on the remaining balance. Once you receive notification that your mortgage was recast, start making your newly calculated payments.
To recap: If you have equity in your current home and need to purchase a new home before selling, recasting could help. You can purchase the new home making a lower down payment (5-10%) and then recast once you have sold your current home.
Need help buying or selling your home? Let’s chat!