RightFiguresA recast applies one lump sum to principal and then spreads the reduced balance over the remaining months you enter. The interest rate stays the same. The new figure is a principal-and-interest payment, not a servicer’s agreement to recast the loan.
What this comparison includes
The lump sum is subtracted once, before either schedule. Both columns then repay the reduced balance. The recast column uses a new payment for the remaining months. The other column keeps the monthly payment you enter. Taxes, insurance, and a recast fee are left out.
Principal and interest paid in either column starts after the lump sum. The lump sum itself is not added to those totals.
Keeping the current payment often finishes sooner and charges less interest, even when the recast payment is lower. The result says which one charges less interest when both schedules finish. If the payment you enter does not reduce the reduced balance, or a balance would remain after 50 years, there is no completed payoff to compare. Month 600 does not pay off a leftover balance.
A lower payment is not the same as less interest
On a $250,000 balance at 6% with 360 months left, a $1,498.88 payment, and a $25,000 lump sum, the recast payment is $1,348.99. Keeping $1,498.88 on the $225,000 balance pays the loan off in 279 months and charges $68,343.98 less interest than the recast. The $25,000 is not included in either principal-and-interest total.
If the lump sum is $0.00 and the payment you enter is already the payment for that balance and term, the two schedules match.
What a servicer decides
Fannie Mae describes re-amortization after a substantial principal payment as a lower payment over the remaining term. That description is only the idea. This page does not apply investor eligibility, a form, or a fee, and it does not say whether Fannie Mae, Freddie Mac, FHA, VA, USDA, or another servicer will recast a loan.
An extra mortgage payment keeps the contractual payment and shortens the term. A refinance replaces the loan and can change the rate and the term.
Sources & review
- C-1.2-01, Processing Additional Principal Payments — Fannie Mae
- Recast loan overview — Fannie Mae
- How does paying down a mortgage work? — Consumer Financial Protection Bureau
Last reviewed: . The formula is reproduced above so you can check the math independently.
Educational principal-and-interest estimate only. It does not decide whether a servicer will recast the loan.