Recasting lowers your monthly mortgage payment after you make a lump-sum payment, without changing your rate or taking out a new loan. Here is what it does and when it is the right tool.
A recast, sometimes called re-amortization, is when your lender recalculates your monthly payment after you pay a lump sum toward the principal. You keep the same interest rate and the same remaining term, but because the balance is now smaller, the required monthly payment is spread over the years you have left and comes out lower. For a fee that is usually a few hundred dollars, your payment drops and nothing else about the loan changes.
The key thing to understand is that recasting lowers your payment but does not shorten your loan. You still finish on the original schedule, just with smaller monthly bills along the way. That makes it almost the opposite of simply paying extra, where you keep the same payment and finish years early. Recasting trades the early payoff for breathing room in your monthly budget.
Paying extra each month, which is what the mortgage calculator on this site models, keeps your payment the same and uses the lump or the monthly extra to shorten the term and cut total interest. It is free, needs no paperwork, and saves the most interest because the loan ends sooner. The downside is that your required monthly payment never falls, so the money is committed.
Recasting is the middle option: you make a lump-sum payment and then have your remaining balance re-amortized to a lower monthly payment over the original term. Refinancing is the heaviest option: you replace the loan entirely with a new rate and a new term, which can save a lot if rates have dropped enough to cover the closing costs, but involves an application, an appraisal and fees that often run into the thousands. Recasting keeps your existing rate, which matters a great deal if you locked in a low rate that you could not get today.
Recasting shines when you have a low fixed rate you want to keep and you have come into a lump sum, such as proceeds from selling another property, a bonus, or an inheritance, and what you want is lower monthly commitments rather than an early payoff. A common case is buying a new home before selling the old one: once the old home sells, you put the proceeds against the new mortgage and recast to bring the payment down to what it should have been.
It is less useful if your goal is to be mortgage-free as soon as possible, because for that, paying extra and keeping your payment high saves more interest and ends the loan sooner. It also does not help if you have a high rate that you could refinance away, since recasting locks you into the existing rate. Note too that not all loans can be recast: most conventional loans allow it, but FHA, VA and USDA loans generally do not, so check with your servicer first.
Call your loan servicer and ask whether your loan is eligible for a recast and what the minimum lump sum is, since many require you to pay down a set amount, often a few thousand dollars, before they will re-amortize. Ask about the one-time fee, which is typically modest compared with refinancing costs. Confirm in writing that the lump sum will be applied to principal and that the recast will follow.
If you are weighing recasting against simply paying extra, it helps to see both outcomes in numbers. Put your current balance, rate and payment into the mortgage payoff calculator, then try lowering the balance by your lump sum to approximate the recast, and separately try keeping the payment high to see the early-payoff path. Seeing the payoff date and total interest side by side makes the trade between a lower payment and an earlier finish concrete.