Homeowners looking to lower their monthly mortgage payments and reduce their interest rate may be able to do so without refinancing. A little-known strategy called recasting or re-amortization is available through some mortgage lenders and servicers, and eliminates the hefty fees and daunting credit requirements of refinancing.
Re-amortization requires borrowers pay off a lump sum of the principal amount on the mortgage and asking to have the monthly payments reset according to the original interest rate and loan terms. The lump sum reduces the principal, so the new monthly payments decrease slightly and interest paid over the life of the loan is reduced.
Lenders typically charge an administrative fee of $150 or more to re-amortize a mortgage; however, borrowers are not required to pay closing costs or submit to another credit check.
Re-amortizing works well for homeowners unable to qualify for refinancing, especially those who are self employed or have low poor credit.
Homeowners consider re-amortizing their mortgage should be aware that some lenders require a minimum amount to be paid toward the principal in the lump sum. JPMorgan Chase, for example, charges a $150 fee and requires a minimum $5,000 payment toward the principal.
Another challenge is finding a lender, or loan servicer, that offers re-amortizing. JPMorgan Chase and Bank of America exclude loans backed by the Federal Housing Administration and Dept. of Veterans Affairs, and loans that were sold off and securitized may also need investor approval.
