When mortgages are initially taken out by borrowers, they are usually done so based on certain terms. A loan contract will generally set out an agreed-upon balance, interest rate, and payment schedule. In many cases, these terms remain fixed until the loan is paid off or renegotiated. A mortgage recast (also known as a loan recast) is an option for borrowers who want to reduce their monthly payments by paying off a substantial part of the loan principal.

Recasting a mortgage is a process in which a borrower pays a lump sum toward their loan principal and the lender recalculates the loan based on the new balance. Upon doing this, the lender renders a new amortization schedule. An amortization schedule is a table of loan payments that shows the principal and interest due and the total amount paid off at certain intervals, usually monthly.

When it comes to the benefits of mortgage recasting, the main advantage is the ability to reduce monthly payments. This could be crucial for those struggling to make ends meet, those looking to free up money for other investments, or those who just wish to take some stress off their financial life. Additionally, negative amortization loans and option adjustable-rate mortgages (option ARM) usually have a mortgage recast clause as part of their loan contracts.

In order to recast a mortgage, there is usually a one-time fee involved. This fee could be 1 - 2% of the total lump-sum payment, depending on the lender. Borrowers should be sure to do their research and compare lender fees, as the cost of this fee could potentially negate the potential benefits of a recast.

Overall, a mortgage recast can be beneficial for borrowers looking to reduce their monthly mortgage payments and save money. While there is usually a fee involved, it may be worthwhile for some borrowers depending on individual circumstances. Borrowers should do their research and make sure that the potential savings outweigh the costs.