How a mortgage recast works
A recast (also called re-amortization) is when you pay a large lump sum toward principal and your servicer recalculates your payment over the same remaining term at the same interest rate. There is no new loan, credit check or appraisal, usually just a fee of about $150 to $500. Conventional loans are usually eligible. FHA, VA and USDA loans generally are not.
The formula is the standard amortization payment: M = P × r / (1 − (1 + r)−n), where P is the balance after the lump sum, r is the monthly rate and n is the number of months left.
Worked example
You owe $300,000 at 6% with 25 years left, so your principal and interest payment is $1,932.90. You put $50,000 down and recast for a $250 fee. Your new payment is $1,610.75, which is $322.15 less each month. Over the remaining term you save about $46,395 in interest after the fee.
If you make the same $50,000 payment but keep paying $1,932.90, the loan is gone in about 17 years 5 months and you save about $126,407. Recasting buys you monthly breathing room. Keeping the old payment saves the most interest. See the recast vs refinance vs extra payment comparison.