1 Little-Known Way to Drastically Lower Monthly Mortgage Payments -- Without Refinancing

If you missed out on the refinancing boom, don’t fret -- there’s another option.

Jan 19, 2014 at 10:00AM

With mortgage rates rising and the refinancing rush all but over, you may be kicking yourself for losing out on a sure-fire method of lowering your monthly mortgage payments.

What you may not know, however, is that there's another way to reduce your home loan payments: simply by reducing the principal amount on the mortgage itself. Called reamortizing, or recasting, this method isn't for everyone. If you qualify, though, you may be able to knock an appreciable amount off of your monthly payment -- all while avoiding hefty refinancing fees.

Recasting takes on new meaning since the financial crisis
Re-amortizing a mortgage isn't new, but neither is the process given the same kind of press bestowed upon loan refinancing. Often, customers need to ask a bank's loan officer for details, since the method is seldom described to the same degree on an institution's website as are refinancing options -- if it is covered at all.

Since the mortgage meltdown and ensuing financial crisis, recasting has been presented as a way for underwater homeowners to reduce a loan principal bloated by pre-crisis real estate prices. Through its "Keep Your Home California" program, for example, principal reduction has been used extensively to help approved homeowners in the state stay in their homes.

Not for troubled loans only
But reamortization isn't only for borrowers in trouble. The technique can be useful for those who have the wherewithal to pay down a sizable chunk of their mortgage, but don't wish to change any of the terms of the loan.

For example, let's say you came into an inheritance, and determined that paying off a portion of your mortgage principal was the best use for the funds. Using this calculator from Bankrate.com, you can see that the monthly savings can be notable on a 30-year, $325,000 loan at 7% interest by reducing the loan principal amount to $300,000 -- decreasing payments by nearly $170 per month. A higher interest rate, combined with a larger lump sum, would yield even greater savings.

With mortgage recasting, the interest rate and terms remain the same. The savings per month are determined solely by the amount of money you choose to apply toward the principal mortgage amount. Perhaps because of the simplicity of the transaction, recasting is often much cheaper than a full refinancing, which can run into the thousands of dollars.

Using a refinance calculator on myFICO.com shows refinance costs totaling nearly $5,000 on a typical loan, although a "streamlined" refinance could conceivably lower these costs. A principal reduction at PNC, on the other hand, costs somewhere between $500 and $1,000. 

Caveats
Loan recasting isn't the answer for everyone. You will have to qualify for such a modification, just as you would for any loan. In many cases, permissions must be obtained from the original lender or investors who bought the loan as part of an investment security, and most banks require a minimum lump-sum payment to launch the process -- PNC, for example, demands a sum of at least $10,000. You must also do your due diligence to be certain that chunk of change wouldn't yield better results as a direct investment elsewhere.

There are other ways, such as bi-monthly or bi-weekly mortgage payment plans, that will pay down your loan faster, if that is your true goal. For those looking to reduce their monthly loan payment without refinancing, however, recasting might be just the right fit.

Need investing advice? Look no further
As every savvy investor knows, Warren Buffett didn't make billions by betting on half-baked stocks. He isolated his best few ideas, bet big, and rode them to riches, hardly ever selling. You deserve the same. That's why our CEO, legendary investor Tom Gardner, has permitted us to reveal The Motley Fool's 3 Stocks to Own Forever. These picks are free today! Just click here now to uncover the three companies we love. 

Fool contributor Amanda Alix has no position in any stocks mentioned. The Motley Fool owns shares of PNC Financial Services. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.

 


Compare Brokers