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Useful Tip to Lower Your Mortgage Payment

Useful Tip to Lower Your Mortgage Payment

This morning I read about a way to lower your monthly mortgage payment without refinancing.  It is something I had never known about before.  It is called recasting or re-amortization.    It is described in this New York Times Article.

 

Money bagThe way it works is that some lenders will allow you to pay a lump sum towards principal on your existing mortgage loan.  They then will reamortize the loan, under the original interest rate, over the remaining term of the loan.  It does not change the rate nor does it extend the term of the loan.  It does, however, reduce the monthly mortgage payment as well as save interest over the life of the loan.

The article suggests that it is a useful tool for those who may not be able to refinance due to some past credit issues or who perhaps do not want to pay the fees associated with a refinance and for those who may have a lump sum of cash from maybe an end-of-year bonus (do people still get those?) or maybe an inheritance.   Recent buyers may find it a useful tool to reduce their monthly payments if they expect maybe a decent tax refund.

While it is not generally advertised, it is a program that some lenders are willing to use.  According to the article, most lenders will charge an administrative fee in the area of $150.00.  And, some lenders may have a minimum amount that they require the homeowner to put down.

This is definitely not something that everyone can or should do.  However, for those looking to reduce their monthly payment and save interest over the long term, it is worth looking into.  Of course, if you are lucky enough to have a large lump sum of cash, it might also make sense to do an analysis of whether you would save more money by investing that cash wisely or to do a recasting of your mortgage.  I find it to be helpful to look at all options when making a financial decision.

 
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Comment balloon 4 commentsChristine Smith • January 07 2011 06:11PM

Comments

Thanks for the article, Christine.  While I've never heard of a technical term for this process before I was always advised to "pay your mortgage down".  In other words, pay a little more each month so that your bottom line is lower.  The problem for most people is that they don't have the funds to make a large payment.  With the increase in utilities, groceries, gas and just about every other type of living expense, most people are hording their savings because that rainy day may be upon us sooner rather than later.  As frustrating as this process is, its worth trying to re-fi or do a home modification loan.

Posted by Dave Leiderman, ABR, SFR - Realtor - DE & MD Beaches (Coldwell Banker Residential Brokerage) about 7 years ago

Christine, I had not heard of this and will keep this information in mind for my clients and family:)  I always have told my clients to pay extra monies, on the mortgage payment, every month.  If they try to save up for the end of the year, it will never happen.  Holidays, heating fuel, etc., take those monies away, quickly.  Even if it's only $20,00, it will make a difference.

Another good idea, is to pay the mortgage, twice a month.  Some of my clients pay it every week. It's the same payment amount, just split up by 2 or 4.  That will pay off your mortgage, in almost half the time!

Posted by Frances C. Rokicki, Broker-Mentor,CRS (Fran Rokicki Realty, LLC) about 7 years ago

I remember this term from my days in the mortgage business ( 14 years ). It's a nice tool to have for specific home owners, but not every bank and lender offers this feature.

Posted by Dan and Amy Schuman, Luxury Home Specialists (Howard Hanna Real Estate Services) about 7 years ago

Dave and Frances...yes, it is similar to making an extra payment or a little extra every month but the difference is that those will not change your monthly payment; this will.

Dan and Amy....I agree that it is a tool for a very limited number of homeowners but I guess if you are one of those homewoners, then it is good to know about.

Posted by Christine Smith, Exclusive Buyer Agent & Attorney, Canton, MA (Buyers Brokers Only LLC - www.BuyersBrokersOnly.com) about 7 years ago

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