Hi TA - curious to get people's thoughts -

I have roughly a $450k loan @ a 5.625% interest rate on a 30Y note. I know a lot of people say don't pay off your house early, but feel like at a 5.625% rate, it doesn't hurt to pay some off as thats higher than what I could get in a High Yield Savings Acct and if/when I'm able to re-fi, i'll be in an even better spot.

If I have 50k to put towards the house (assume retirement accounts maxed, emergency savings in a good spot, and have an OK additional brokerage acct), which is the better option?

A - $50k to "recast" the loan. It would lower my monthly payments by $235 approximately, but take no time off of the length of the loan

B - $50k lump sum toward the principal - this would save me approx $160k and shave over 6 years off the loan.

Is the best option here just preference - do I want a lower monthly payment vs getting out of my loan faster? Are there other things I should consider?

TIA!

If there are no fees, option B is better. Both reduce your principal by the 50k, but option A stretches the payments over longer, meaning more interest. If there are fees or a different interest rate, you'll need to do some math.

where are you in amortization schedule? In other words, how long have you had the loan?

Jay@AgsReward.com said:

---

where are you in amortization schedule? In other words, how long have you had the loan?

---

sorry. this is a very new loan. have it since April. Dec 2052 is last payment date. I've made some smaller payments toward principal, which is why its on track for Dec 2052, and not May 2053

In that case I think it's more of a question of your monthly budget. What would you do with the savings from the recast? If that's the difference that, say, let's you max a 401k or HSA, or bolster an emergency fund, or the kids college fund, then the recast would make sense.

I see where my error was on the date of the loan--saving $160,000 is just cash saved from paying interest, I mistakenly included re-investment on the back-end.

Re-casting the loan is rarely the right answer unless there's a dire budgetary reason to do so. You're paying $160,000 less in interest/total payments over the life of the loan and get to start doing other things with that monthly payment 6 years sooner if you plan on living in this house that long.

Or you save $253 a month for the next 29 years and pay $89,000 less in total payments on the recast scenario. Doesn't make a lot of sense to do that.

Ahhh... My mistake, appreciate the correction.

Certainly does change the math for someone considering that route.

I wasn't opinning on whether it's the best use of the $50K in this example. I was talking about whether recasting versus not is the typically the right choice if the decision is to reduce the mortgage.

I would also factor how long you plan on staying in it. In a normal world, and if this is your first home, you would probably be looking to move by year 7 regardless of what you think right now.

I would at least run math on a scenario like that.

Kenneth_2003 said:

---

In my opinion the only reason to recast would be very early in the not after a sale. Say you and the family upgraded to the edge of your comfort zone but planned to roll a large equity position from your current home after it sells after you close on the new place.

---

This is the situation I am in. Putting 10% down on new home and then will recast in a few months after the current home sells. I understand there will be Minimal fees with the recast, the term continues, reduced principal and reduced monthly payment to a more comfortable monthly payment for my budget.
I don't see refinancing in this scenario as beneficial unless I am missing something

Recently bought a house and fully plan on doing a re-cast once we sell our current home and do roughly a 50/50 split. 50% going to the re-cast, 50% back into investment portfolio. Mortgage at 6.5% sucks and don't want to be paying that much interest if I can avoid it (sure it's tax deductible, but I'd rather be re-investing than getting "tax free income" that goes straight to the bank).

I only plan on doing a single re-cast then will let the mortgage ride until rates make a re-finance make finance sense.

Now if rates sky rocket in the next 12-months and my HYSA can go from 5.25 to 7-8%, then I'll be kicking myself for doing the re-cast.

I'm no personal finance wizard, but not a big fan on debt… especially pretty expensive debt in relation to what we are used to for the last decade.

you're not missing anything.

I don't have near the problem with the idea of recasting as most apparently do here.

Is "recasting" new? This is the first time I've ever heard of this term in this thread.

Not new.

jja79 said:

---

Not new.

---

Weird. Literally never heard this term.

YouBet said:

---

jja79 said:

---

Not new.

---

Weird. Literally never heard this term.

---

I was not aware of it until I spoke to a lender about how to go about buying a home then selling existing and throwing money at the principal while also reducing the monthly payment of the original loan. This was just recently for me as I was not in the market looking at a new house until a few months ago

My last thought on this. People that are well to do and have a lot of cash and investments sitting around are the exception and not the rule. I would say the majority of Americans are working to live and must stay on a strict budget. To me that majority of Americans view a mortgage as nothing more than a budget management tool. An opportunity to reduce the monthly obligation is probably a big deal to the average American. Probably doesn't apply to a lot of posters here.

Thanks all. Appears it's between monthly flexibility and getting out early. Just making sure theres something I'm not missing or considering