There’s a really cool tool that lenders call “recasting”. A lot of people have never heard of recasting, so let me start with some other terms that will help you understand it.
When you get a new loan, the bank looks at the amount you’re borrowing, the amount of time you want to pay it back (typically 15 or 30 years), and the interest rate that you’re getting. At that point they can put together an amortization schedule. An amortization schedule is a chart that shows each payment you’ll make over the next 15 or 30 years. It breaks down how much of the payment goes toward your principal balance, how much of the payment is interest, and what your remaining loan balance is after each payment.
What happens if you pay a little bit extra? Let’s say you get a balance from work so you pay a little extra one month. This reduces the amount you owe and this is what interest is based on so it will also reduce the interest you pay going forward on this lesser amount. Your payments don’t change but at the end of it all you’ll be done with your mortgage in less than the 15 or 30 years. So, that pretty amortization schedule you got at closing? It becomes a worthless pile of paper fit only for recycling and maybe campfires.
Now that we understand amortization schedules and how they change, let’s talk about recasting. Basically, this means that if you have a really large chunk of money come to you and you put it down on your mortgage, some (but not all!) lenders will let you re-amortize your loan without refinancing where the loan pay off date stays the same but your payments get lowered. Unless you’re expecting a really large inheritance, why would you care about this? Well, this is just one strategy we can use in helping people that who want to buy a new house but have a house to sell as well.
For many people the idea of selling their home before they know exactly where they are moving to is a really scary prospect. What if you don’t find the right house but you’ve already sold your house? Yikes! Recasting allows us to scrape together a minimal down payment, purchase the dream house first, then sell the original home and take the equity from that home and reduce the new loan. It’s such a great tool to reduce stress when moving from one house to the next.
This is just one of many strategies that the agents at Clarity and our associates all of the country are experienced with and have been well trained in. If you need a partner in real estate, reach out to us and we will connect you with someone who not only has the right experience and knowledge but is also a great personality fit for you.