Have you ever heard of mortgage loan recasting?

Me either. Ashamed that I am almost 70 and didn't know this simple trick.

I just lowered my payment $565 without changing terms or rate. 5 minute phone call.

We have a mortgage with a super-low rate that does not make sense to pay off. It irks me like an itch you can't scratch.

I just saw a You Tube video by an old guy talking about recasting your loan. 750 likes in total. Something made me watch it. It wasn't even over and I called my mortgage company. In less than 5 minutes - literally - I lowered my payment $565. No change in terms, no extending of loan, no refi.

The fee is $250 in most states, some states (NC being one) do not have a fee at all. MUCH cheaper than a refi, and you don't lose your good rate if you have one. What is ever wrong with a lower payment? If you want, just keep paying the higher one and more goes to principal. Or take the extra and go to lunch.

You are going to pay that money to the bank anyway eventually.

Was getting ready to go mow the lawn at the PR but now I have to look into this.

I've never heard of it before either. This would seem to work best if your mortgage rate is somewhat high.

Just a quick numbers crunch on a place I have.

98k loan, 30 yr fixed, started in 2022, 6.125%, paying 5k and costs me $250.

Lowers my P&I by $31.59/mo. Would take what, something like 13.8 years to break even?

Maybe I am doing the math wrong?

But then again if I am paying the money towards the loan anyhow I guess all I am losing is the $250 processing fee.

So we just analyzed one son's loan and it was not worth doing at ALL. He has a new loan (2021) $220k for 30 years at 2.875% (wow). His P&I is about $1000 a month give or take. His total PAYMENT is way higher than that, almost double, because of escrow but the recast of course only affects the P&I payment. $5k dropped him literally a few dollars. We kept upping it and finally got it to about $650/month by investing $45k! No thanks.

So you definitely have to analyze your specific loan.

We used a generic mortgage calc and deleted all the extraneous numbers, just used Principal, term length and interest rate to get to his actual payment. Then kept adjusting the "down payment" to figure new P&I.

That is what I found for the much smaller loan as well.

I also ran some numbers. I have one mortgage at 7% over 20 years with about 190k outstanding. Assuming I put down $ 50,000, I'm figuring I'd earn a guaranteed 7% on that money. My payment would drop $ 421/mo or 5,052 annually. In pure cash flow terms, I'd earn a 10% return on that money. The interest savings over the term would around $ 41,000.

The cash flow return alone on the paydown is better than risk-free yields on T-bills, HYSAs. CDs and etc. and rivals the return on a balanced sort of investment assuming 60/40 stock/bond.

This works if the interest rate is higher and the amount of paydown is larger relative to the mortgage.

Why reduce your loan payment? Seems like you have already been making it paying the higher amount. If you just threw the extra cash (and fee) against the loan principle and kept the payments at the same level, you would repay it in a much shorter period of time. Paying off properties early is a good thing!

In essence all recasting does is for a small fee it keeps the same payoff date when you throw extra principle at a loan. Over the course of the loan, that process makes the bank more money, not you. That's why Dave is against it.

My payment went down $565 on $5k payment. We had a 20 year note, 16 years remaining. 2.99%

DS3 note is 16 years remaining on a 30-year note. They will also realize a big payment change on a $10k investment (close to $700 decrease!) 4% rate

DS2 refied to a really low rate 4 years ago, 26 years left on 30 year note. After much math, we realize it simply takes a ton of money to get his payment down - not worth it at all. 2.8% rate

All loans are not jumbos at all.

Mike if you recast to current principle, you keep same payoff with lower required payment for rest of loan. Break even for me is 10 months, with another 15 years of lowered payment.

Several of my California Banks have rules in the original loans, that I'm only allowed to pay extra Principal after the First Three Years AND limited to 20% of the balance within any year. Otherwise fee's and penalties apply.

I had many commercial loans on residential properties 5 units and more with such restrictions. My Banks understood that my original interest was based on a HIGHER RATE during times it was hard to get financing. And then when interest rates dropped from 7% down to 3%, my banks did everything to avoid a reduction of the principal without penalty.

I don't understand saying it does not shorten the loan. It can.

The way to make it work is recasting the loan to a lower payment, then continuing to pay the same as you were - but now MORE is going to principal so you ARE paying off the note faster - without increasing your payment.

I had a loan that was re-sold 4 times to different institutions. One of them, before the sale of assets, did a new spread sheet with a final column that they fooled over when making a copy. For 17 payments with extra principal payments, the balance listed as "Nothing extra paid during their brief ownership".

When I got my new statement from the new owner of my loan, it was 90 days old, but I always kept my payments current.

People claimed that I hadn't issued an objection within the 90 day period. The authorizes would do nothing.

This was all very interesting. Thanks WMH.

I did find it quick & easy to ask the Google AI To give me advice.

And ask it to give me a report comparing what is best.

I just gave it the numbers it asked for to:

Recasting the loan

Paying down principal with an extra monthly amount and then with a lump sum.

Good questions to ask. I put that into Ai as well, with my numbers.

Making the $5k payment to principle only saved a lot more money and shaved like 37 months off the loan.

Then, for the fun of it, I asked about the $5k being put in the S&P500 for the remainder of the loan length and it blew the numbers out of the water. Basically I could make over $50k with that investment in that time frame.

But I am now going to consider making a lump sum payment on a smaller loan I have with a higher interest rate.

Thanks for getting the thought process going tho.

"I don't understand saying it does not shorten the loan. It can. The way to make it work is recasting the loan to a lower payment, then continuing to pay the same as you were - but now MORE is going to principal so you ARE paying off the note faster - without increasing your payment."

So here are two options using your numbers that hopefully will help explain it:

1) you pay $250 fee and put $5,000 into the recast and then pay the same payment you were before.

2) you don't recast but simply pay $5,250 to pay-down the principle.

In these two options, #2 is the better solution because you are taking the fee and turning it into paying off principle rather than paying the bank. You will pay the loan off quicker by applying that extra $250 to principle and saving yourself interest on that extra pay-down.

Yes, in both cases you paid down the balance on the loan so in both cases that $565 will be going towards principal since the interest will be lower per month on a lower loan balance. The only real difference, assuming you continue to make the higher payment, is the $250 that went away as a fee in the first example. That goes towards paying down principal in the second example, so you get about 1/2 month extra principal pay-down using the later example. That gives a slight advantage to the later example.

Other than that, it's not magic, you are simply paying down a loan balance when recasting just like when making a big principal pay-down on a conventional loan. Either lowers the amount of monthly interest charges. The only difference with recasting is that the bank then lowers the payment amount so that it stretch out the loan repayment back to the original pay-off date of the loan rather than take advantage of paying it off early by simply by keeping the payment amount the same.

Recasting can be an excellent asset protection tool. A typical recast doesn't change the initial paper work recorded at the courthouse because this is all in house.

I can take out aa $100,000 on a $150,000 place, six months later drop $80,000 down on that same loan and ask to have that loan get recast. On paper, your are heavily leveraged. Reality, you have a LTV of about 15%. The recast drops that $900 payment down to $200.

Good point Ray, and one that I obviously had not considered.

Question tho, how does one find out what the mortgage amount owed actually is?

I know I can look up if a property has a mortgage, and unless local I can see who it is with. Does one get more detailed information by actually going into the treasurer's office and asking to see the file?

You have mentioned before about asset protection when you place a mortgage on a property. So when I have Ray's Humble Mortgage Provider as the company holding the note, can people actually see what the note was for?

In both cases the loan doc's do not change after recorded so no significant difference in asset protection. Recasting does allow you to lower your payment so you can generate more cash-flow up front. The problem is it drops the amount being applied to principal back to almost nothing, so you are paying interest much longer.

Strange thing about attorneys who make their living suing people. They only get paid when they collect money. So, are they seeking out folks who are flat out broke? This is where your actions and behaviors have some say in this matter.

The first and most obvious point, don't make yourself a target. If you are a total knucklehead, seeking trouble - real estate is a fine place to find it. Case in point, if your building in South Florida comes crashing down - you are deep troubles.

When they are doing asset searches on you, one of the first things they will look for is if your home is free and clear and how much insurance you have.

The second position yourself when something goes wrong (and it will), make yourself look broke so you make the attorney wonder if they are going to get paid. You can do this by playing to his/her strengths or seeking out his weaknesses.

It is important to understand that 1) landlords are viewed as being rich and are attractive targets 2) You are most likely to get sued as part of an accident in your car (so don't cut corners in this area 3) You can only prepare yourself so much.

How can you do this either go to a bank and get a loan or go to one of your other LLCs and take out a loan from yourself - that process is called Equity Stripping. When you do this, make sure you have a signed mortgage satisfaction piece and that you indeed transfer funds between the LLCs. That satisfaction piece is important as one day, you might not be around to satisfy that note. Equity Stripping works best when your LLC sounds like a bank. Likewise, your LLC that you use strictly for property management should match that role too.

Nothing says you can't take out a 90% LTV loan on your own property, pay 89% of it back and recast the loan. There is no measurable change in your cash flow, just a chain of paperwork showing you up to your neck in debt. If you want to charge yourself points, fees and origination fees, go ahead. I don't. This is where in paper, you are in debt to the world....and you are.

Now back on to the topic. When I do to the bank and get a loan, I routinely get a loan larger than what I need. I pay that loan down with that extra amount as a principle paydown. Then when the note resets, every five years (Unfortunately, I am only using commercial loans now a days), the payment automatically recast itself for the balance of time and the current interest rate. Recasting occurs naturally here at these reset periods. No extra cost for it if the bank does it. You can also spend some extra money and request a loan mod. That works when there was a sudden drop in loan rates

My head is spinning.

Me? I like simple. Paid off means MY money is not making the bank rich.

Cash flow from DEBT FREE is AMAZING!

And I don't have to play their games.

Yo, Brad.

Finally a post I agree with.