It might be a good idea to start off 2022 on the right foot – let’s get your mortgage paid down faster! If you have a situation where you have a lump sum of cash which can be used to pay down your existing mortgage, you may have several options. If you prepay the principal on a fixed-rate mortgage, it shortens the term of the mortgage but the payment stays the same.
In a reverse manner, recasting a mortgage with a lump-sum principal payment will lower the principal and interest payment but leaves the term intact with the same payoff date.
No matter the choice, the interest rate on the mortgage will stay the same. Prepaying principal may be done at any time, but it may not be applied until the next payment date. Recasting cannot be done within the first 90 days of a mortgage.
What’s it like to prepay your principal? It’s essentially like driving faster to get to your vacation destination quicker. Recasting/Re-amortization will get you to your destination at the same estimated time of travel if you will, but with a significantly less amount of fuel.
Most loans allow you to pre-pay principal, but recasting is not allowed on FHA, VA, and GNMA. If you have a conventional loan, check with your lender to see if it is possible.
And as always, you should reach out to your mortgage servicer for specific information on pre-paying or recasting your mortgage. They will be happy to answer any questions you may have.
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