Recasting a mortgage loan can be a beneficial option for homeowners who are buying a new home before selling their current one. Mortgage recasting refers to the process of modifying the terms of an existing loan to adjust the monthly payment amount. By recasting their mortgage, homeowners have more financial flexibility during the transition period.
When buying a new home before selling the current one, homeowners may face the challenge of managing two mortgage payments simultaneously. Even without an existing mortgage, a homeowner typically needs the equity in their current home in order to finance their new home. Recasting the mortgage loan can help alleviate this financial burden. The way it works is –
- purchase your new home with a minimum down payment
- sell your existing home
- apply the proceeds from your existing home to your new mortgage, which is recasting and allows you to basically apply your down payment later!
Another advantage of recasting a mortgage loan is that it often involves minimal fees compared to refinancing or taking out a new loan. While refinancing requires going through the entire mortgage application process again, recasting typically only involves a modification to the existing loan. As a result, homeowners can save on closing costs and other fees associated with obtaining a new mortgage. This can be particularly helpful for homeowners who expect to sell their current home in the near future and want to minimize expenses while still securing a more affordable monthly payment on their existing mortgage.
In summary, recasting a mortgage loan when buying a new home before selling the current one can provide homeowners with several advantages. It allows for lower monthly payments, providing financial flexibility during the transition period. Additionally, recasting typically involves fewer fees compared to refinancing, helping homeowners save money. Ultimately, consulting with a mortgage professional is recommended to determine whether recasting is a suitable option based on individual financial circumstances and goals.