Homeowner Education
Recast or refinance? Two different ways to use a lump sum on your mortgage.
A bonus, an inheritance, RSU proceeds, or a bigger-than-expected savings balance can raise the same question: should that money go toward the mortgage, and if so, how? Recasting and refinancing solve different problems, and mixing them up can lead to the wrong comparison.
What a recast does
A recast applies a lump sum to your existing loan's principal balance, then your servicer re-amortizes the remaining balance over your current rate and remaining term. The rate does not change, the loan does not change, and the process is typically simpler and less costly than a refinance. The main effect is a lower required monthly payment going forward.
What a refinance does
A refinance replaces your current loan with a new one. That means new underwriting, typically a new appraisal, and new closing costs, but it also means the rate, term, and loan structure can all change. A refinance is the tool to reach for when the goal is a different rate, a different term, or accessing equity, not just a lower payment on the same loan.
When each might make sense
A recast can make sense if you are comfortable with your current rate and term and simply want a lower monthly payment after a lump sum. A refinance can make sense if your current rate is meaningfully above where the market is now, you want to shorten or lengthen your term, or you want to convert home equity into cash for another purpose.
Questions worth asking before deciding
Ask your servicer whether your specific loan is eligible for a recast at all, since not every loan type allows it and some government-backed loans do not. Ask about the recast fee and the minimum lump sum required. Then compare that against current refinance rates, closing costs, and how long you plan to stay in the loan before deciding which path actually fits the goal.