by Richard F. O’Boyle, LUTCF, MBA
Many people refinance their mortgage in the hopes of lowering their monthly payments, but there’s a little-known trick that can lower your monthly mortgage bill without a costly and hassle-prone re-fi. The last thing the banks want you to do is shorten your loan, reduce your interest rate, or lower the lifetime interest paid: that’s why they push refinancing. They want to sell you a new mortgage with all the attendant fees and lock you in for another lengthy term.
A reamortization, also known as a recast or a principal curtailment modification, will lower your monthly payment without a new mortgage loan. The bank will recalculate your current mortgage (using the same term and interest rate) and lower the required principal and interest payments going forward. Over the life of the loan, the total interest payments will also be lower. This strategy only works if you have been paying additional principal towards your mortgage over the years or you have a lump sum now that you want to pay.
Many loan officers don’t even know what a reamortization is! And banks don’t make it easy for you. They will charge a fee of about $200 and then drag things out for a few months. They may even require you to have your mortgage prepaid for a month in advance while they shuffle their paperwork. But if your monthly payment goes significantly lower, it may be worth the effort. After recasting your mortgage, you can still continue to make additional principal payments and then do the process again in a few years.
If you decide that recasting makes sense for you, be prepared:
- Have a lump sum (perhaps from a bonus from work or an income tax refund);
- Call your mortgage company and track down their recasting specialist and get a direct dial phone number and mailing address;
- Ask them to calculate your new recasted payment amount and to quote you the fee;
- Draft a letter of request for the recast (or whatever their bank calls it) and submit it along with the fee;
- Don’t send your lump sum payment until they tell you exactly when and where to send it;
- The bank will send you a letter that needs to be notarized and returned before your next payment is due; and finally,
- Keep copies of everything!
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