How To Win an Offer and Reduce Your Payment After Closing Using the Power of Recasting
Let’s do it LIVE.
Problem: we had an Iris VIP in Royal Oak, Michigan, who owned a mortgage-free home worth $300,000 and they wanted to upgrade to a bigger home. They needed some extra time to transition with pets and kids and did not want to list their home right away. We wanted to make a strong offer on a home in Grosse Pointe Farms for $625,000 with multiple bids and fierce competition.
Solution: By educating our VIP on mortgage recasting, we offered 5% down, with a non-contingent offer (meaning non-contingent on selling the Royal Oak home) a quick closing, and an appraisal guarantee. This is attractive to a listing agent because this means we would not back out of buying Grosse Pointe Farms due to any trouble selling Royal Oak (inspection, delays, financing fall throughs etc.). The VIP would then be able to put the remaining Royal Oak profits towards the principal balance on Grosse Pointe Farms, recast the mortgage, and re-amortize the loan (reduce and thin out the payments evenly).
Success: With a great local lending reputation in Michigan, we were able to have our offer accepted. We went from submission to clear-to-close in less than 10-days with a full appraisal included. Although 5% down could be perceived as a weaker offer, we made up for it in many other ways and did not have to wait for the Royal Oak home to sell to offer 20%+ down and possibly lose the bid on the house or bypass it and wait.
The Numbers: The Original terms were a $625,000 purchase price with a $593,750 starting loan amount over 30 years at a 6.37% / 6.629% APR with a principal and interest payment of $3,702. The client applied $250,000 to their balance and re-casted the mortgage. After applying $250,000 from selling Royal Oak and recasting the mortgage using a $343,750 loan amount over 30 years at the same rate, the monthly principal and interest payment was reduced to $2,143. That lowered their payment by $1,559. A much more manageable payment.
BEFORE The Original terms were a $625,000 purchase price with a $593,750 starting loan amount over 30 years at a 6.37% / 6.629% APR with a principal and interest payment of $3,702.
AFTER The client applied $250,000 to their balance and re-casted the mortgage. After applying $250,000 from selling Royal Oak and recasting the mortgage using a $343,750 loan amount over 30 years at the same rate, the monthly principal and interest payment was reduced to $2,143. That lowered their payment by $1,559.
What’s the difference between recasting and refinancing?
Recasting and refinancing serve different purposes, so let's break it down:
Recasting: This is a bit of a hidden gem in the mortgage world. If you have a large sum of money to reduce your principal balance, recasting can be a smart choice. It involves keeping your existing loan but re-amortizing it with the reduced balance. Your interest rate and loan term remain the same, but your monthly payments will be lower. It's like giving yourself a more budget-friendly mortgage without the hassle of going through the full refinance process.
Refinancing: Refinancing is like hitting the reset button on your mortgage. You replace your current loan with a new one, which may have different terms, interest rates, or even a different lender. This can be a great option if you want to secure a lower interest rate, change your loan term, or take cash out of your home equity.
As posted on Iris Mortgage Instagram.
Should I recast or refinance?
To decide which option is right for you, here are a few things to consider:
Recasting is ideal when:
You have a lump sum of money to reduce your principal balance.
You're satisfied with your current interest rate and loan terms.
You want to lower your monthly payments without changing the terms of your loan.
Refinancing is a better choice if:
Interest rates have dropped significantly since you got your current mortgage.
You want to change your loan term (e.g., from a 30-year to a 15-year term).
You need to tap into your home equity for other financial goals, like home improvements or debt consolidation.
Re-CASTING. Get it?
Let’s talk it out here.
It's crucial to crunch the numbers and compare the long-term costs and benefits of both options. You'll want to consider closing costs, the time left on your current loan, and your financial goals.
Here at Iris Mortgage, we're here to guide you through the entire process, whether you choose to recast or refinance. We'll help you understand the market conditions, find the best rates, and assist you in making a well-informed decision that aligns with your financial objectives. Feel free to reach out to us to discuss your specific situation further, and we'll work together to find the best solution for you.
Does this sound like you? What did I miss? Let’s chat about it.
Make it stand out
Chris Thomas
Mortgage Loan Originator
313-655-2423
Individual NMLS# 1526088
Company NMLS# 2084716
