Mortgage Recast: How It Works and How It Compares to a Refi

A mortgage recast lowers your monthly payment after you pay a lump sum toward principal. Your rate and payoff date stay the same. On a $320,000 balance at 6.25% with 27 years left, a $40,000 lump sum plus a recast cuts the principal-and-interest payment from $2,046.98 to $1,791.11, a drop of $255.87 a month.

Recast, Refinance or Plain Prepayment

There are three ways to use a lump sum on a mortgage, and they do different things:

Who Can Recast

Recasting is a servicer decision, not a right in most loan contracts. Fannie Mae's Servicing Guide says that after a "substantial principal curtailment," the servicer may agree to lower the payment by re-amortizing the remaining balance "using the current interest rate and remaining loan term." Freddie Mac loans are handled in a similar way.

Each servicer sets its own minimum lump sum and fee. Ask for both in writing before you send money. Government-backed loans (FHA, VA and USDA) generally are not recast in normal servicing, so if you have one, ask your servicer rather than assume the option exists.

Worked Example: A $40,000 Recast

Now compare total interest over the remaining 27 years:

• No lump sum: $343,222.23 of interest still to pay.
• Lump sum and recast: $300,319.45, which is $42,902.78 less.
• Lump sum, keep paying $2,046.98: the loan ends after 240 more payments, 7 years early, with $211,093.32 of interest. That saves $132,128.90.

So a recast is a cash-flow tool. It saves some interest because the balance is smaller, but far less than leaving the payment where it was. If your goal is the lowest total cost, skip the recast and keep paying the old amount.

Why Not Refinance Instead?

Freddie Mac says refinancing typically costs 3% to 6% of the loan principal. On $280,000, that is $8,400 to $16,800. A refinance also sets a new rate. With the average 30-year rate at 7.03% in late September 2026, someone holding a 6.25% loan would be trading a lower rate for a higher one. A recast keeps the 6.25%.

A refinance can make more sense if market rates fall well below your current rate. See our refinance break-even guide for that calculation.

When a Recast Tends to Make Sense

• You bought before selling. If you buy a new home before the old one sells, you can put the sale proceeds toward the new loan and recast, so the payment reflects the smaller balance.
• Your rate is below today's rates. A recast keeps it; a refinance would replace it.
• You want a lower required payment. A smaller minimum gives you room if income drops, while you can still pay more when things are good.

It tends to make less sense if the lump sum is your emergency fund or if you carry higher-rate debt. Money sent to the mortgage can only come back out through a sale or a new loan, and a credit card at over 20% costs far more than a 6.25% mortgage.

How to Request a Recast

1. Call your loan servicer, the company you send payments to, and ask for a "recast" or "re-amortization."
2. Ask for the minimum lump sum, the fee and the processing time.
3. Send the lump sum with written instructions that it is for a recast. Without that, it is applied as extra principal, the payment stays the same and the loan ends early.
4. Check your next statement for the new payment amount.

What This Doesn't Cover

These figures cover principal and interest only. Escrow for taxes and insurance does not change with a recast. This guide does not cover adjustable-rate loans, hardship loan modifications (a different process) or whether the lump sum would do more elsewhere, such as paying off higher-rate debt. A HUD-approved housing counselor can help you compare options at no or low cost.

Sources: Fannie Mae Servicing Guide F-1-09 (re-amortization after a principal curtailment); Freddie Mac, Understanding the costs of refinancing; Freddie Mac Primary Mortgage Market Survey.