Around the holiday seasons there’s always certain things that come to mind. Of course, there are the celebrations, gift-giving, and the thanksgiving and gratitude. On the financial side, there is the end of year tax planning and also balance sheet analysis. With loan rates at historical record lows, some debt holders look to refinance, others already are taking advantage of the cheap debt. If you were being fiscally responsible this year and were able to build up a good amount of cash in your checking account, I wanted to mention an option that is not used very often to reduce your monthly payments and not have to go through the pain of refinancing.
The financial tool I am talking about is called Recasting. Recasting your loan is a fairly simple process. You would do this if you have built up excess cash in the bank that you may want to pay down your debt. The great thing about this is it does not involve much effort on your part. You don’t need to submit financial information, or updated bank statements or current year tax returns. Your lender won’t be pulling credit again. You just need to pay your lender a few hundred dollars as a fee to do this as well as the amount that you want to pay down your existing loan balance by.
The lender will let you keep the same loan rates and terms. Your principal balance gets paid down, and the big thing, your monthly payments goes down as well. This is because your lender will recalculate your monthly payments based on your new balance going-forward for the rest of the life of the loan. And that’s the difference compared to if you were just to make a big principal payment. If you were just to make a principal payment, your monthly payments will continue to be the same. Keep in mind that if you were just to do a principal pay-down and maintain your monthly payments, you will also effectively pay off your mortgage faster, so there is an advantage to that also.
The reason I like the recasting to reduce your monthly payments in most scenarios is you are increasing your current cash flows. But, as I always say, it depends on your personal situation and your financial goals. So, if you’ve built up some cash in your checking account that you don’t have any current future plans for, maybe consider recasting your mortgage.
In the words of the author and motivator Brian Tracy, “A clear vision, backed by definite plans, gives you a tremendous feeling of confidence and personal power.”
