Should you Refinance or Re-Cast?

Suppose you just inherited some money, received a bonus, or somehow came into a windfall of money.  You've decided that you want to play it safe and put that money toward your mortgage.  Did you know that you don't have to refinance?  What if your interest rate is 5% and the current rates are 6%!  If you are still comfortable with the remaining length of your loan and the interest rate, but would like a lower monthly payment it may make more sense to do a re-cast.  

Every individual will need to determine which option is most suited for his or her needs:

1.)  Pay the amount toward principal and reduce the balance.  The life of your loan will be reduced, but the payment and the interest rate will remain the same.  Good to get loan paid of early.
2.)  Pay the amount toward a re-cast of the mortgage.  Your monthly payment will decrease, but all other terms of the loan remain the same, including interest rate and life of the loan.  Good to lower monthly expenses.
3.)  Refinance the loan.  You'll have more to put down, thus lowering your monthly payment.  Life of loan can be determined at this time.  Good if interest rates are lower than with previous mortgage.

You can see that each scenario has its benefits.  The re-cast looks to be most favorable when your existing interest rate is better than what is currently being offered.  As always, you can probably still pay additional principal and shorten the life of your loan. 

Be sure and read the details of your loan.  You may incur a penalty for paying more than a certain percentage of your loan balance in any given year.....especially for the first few years of the loan.

Realtors cannot give legal or financial advice....only opinions.  Consult your tax advisor about your individual situation.