Enter the original loan amount, interest rate, current balance, and desired lump-sum payment into the calculator to determine the new monthly mortgage payment after recasting.
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Mortgage Recast Formula
The following equation is used to calculate the new monthly mortgage payment after recasting.
MRP = (OB - LSP) × [ i × (1 + i)^n ] / [ (1 + i)^n - 1 ]
- Where MRP is the new monthly recast payment ($)
- OB is the outstanding balance ($)
- LSP is the lump-sum payment ($)
- i is the periodic (monthly) interest rate
- n is the number of months remaining in the loan term
To calculate the new monthly mortgage payment (MRP), subtract the lump-sum payment (LSP) from the outstanding balance (OB), then apply the standard mortgage payment formula using the updated principal over the remaining loan term.
What is a Mortgage Recast?
Definition:
A mortgage recast is a method by which a borrower makes a large, lump-sum payment toward the outstanding principal of their mortgage. After this payment is applied, the lender recalculates the monthly payment amount based on the reduced principal but keeps the same loan term. This often results in a lower monthly mortgage payment without the closing costs or paperwork typically involved in refinancing.
How to Calculate Mortgage Recast?
Example Problem:
The following example outlines the steps and information needed to calculate the new monthly mortgage payment after recasting.
First, determine the current outstanding balance on the mortgage. In this example, the outstanding balance (OB) is $200,000.
Next, identify the amount of lump-sum payment. In this case, the lump-sum payment (LSP) is $20,000.
Assume the monthly interest rate (i) is 0.004 (which would be 4.8% APR divided by 12) and the remaining term is 300 months.
Finally, calculate the new monthly payment using the formula above:
MRP = (OB – LSP) × [ i × (1 + i)^n ] / [ (1 + i)^n – 1 ]
MRP = ($200,000 – $20,000) × [0.004 × (1.004)^300] / [(1.004)^300 – 1]
From here, you get the new monthly recast payment. By using this method, the borrower reduces their monthly burden without needing to refinance the mortgage.
FAQ
Is recasting different from refinancing?
Yes. While both can potentially lower monthly payments, refinancing replaces the existing mortgage with an entirely new loan (typically with different terms and interest rates), whereas recasting keeps the original loan and simply recalculates payments after a one-time lump-sum principal reduction.
Does recasting save interest overall?
By reducing the principal, you pay interest on a smaller balance, which can lead to significant interest savings over the life of the loan. However, the exact amount saved depends on factors like the size of the lump-sum payment, interest rate, and time remaining on the mortgage.
Can all mortgages be recast?
Not all mortgage types or lenders allow recasting. Many conventional loans offer this option, but government-backed loans (like FHA or VA loans) typically do not. It’s important to check with your lender to confirm eligibility and potential fees associated with recasting.
Change-log:
- 6/5/25 - Added functionality to calculate the monthly payment reduction, interest saved, and break even time.
- 6/5/25 - Added Tabs for time saved at the same monthly payment and comparing recast vs. refinancing.