Dave Ramsey's Thoughts On Mortgage Recasting
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- Опубліковано 27 гру 2019
- Dave Ramsey's Thoughts On Mortgage Recasting
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Dave did not explain what it is at all.
First of all there should be no fees involved
Only advantage is a reduced monthly payment everything else stays the same term/rate.
I agree he could have explained what it is and give pro and con not put explain by putting rationale words in people's mouths with a stupid voice in a condensing way... Ugh I miss Chris!
Does Dave know what it is? Lol
He never does usually. Its always a passionate speech that doesnt apply to the question
I know this is an old thread. However, I just did this in June 2023. I had a (roughly) 135k balance at 3.75% fixed with 23 years left on the loan. I called the lender and asked if they would re-amortize my loan, they said yes and required at least 5k lump sum plus a $250 fee.
I had earned some extra money the last couple of years and used 70k to pay the loan balance down to 65k. P&I went down $530 a month, from $880 a mo to $350 a mo. I plan to continue paying what I had been and more, but in the event something happens to me before the house is paid off, the mortgage payment is far more manageable at the new $350 a month minimal amount for my wife, than it would be at $880 a month plus taxes & insurance. Which is why I utilized this strategy in the first place.
In case anyone wants to know, it took roughly 30 days from start to finish for the recast to reflect the new payment schedule. It's hard for me to understand how or why Dave Ramsey didn't explain this strategy more succinctly. In addition, a recast does NOT change the terms of the loan or extend the period of time left on your loan. It simply recalculates the P&I due each month on the balance of years and principal left on the loan after you pay the lump sum.
It really only recalculates the P you pay each month, not the I. The interest is just a factor of your rate times your balance every month. It is true that a recast swerves the beneficial purpose of lowering your monthly minimum payment in case that might help in times of trouble. Otherwise there is no benefit.
@@TheRomans9Guy if the I is based on P * interest rate. then decrease the P also decreases I you pay every month. no?
@@tianhaogu9626 To rephrase your question, if interest owed (and payable) equals principal times interest, then does a reduction in principal not reduce the interest due and payable each month? The answer is yes, you are correct.
The disconnect here in discussing recasts is what the definition of a recast is. What you’ve described above is a “principal reduction,” not a “recast.” A recast can only ever follow a principal reduction, it is an optional second step, but a principal reduction can be taken by itself without also doing a recast.
If before a principal reduction is applied, your monthly payment of $1,000 has you paying $800 in interest and $200 in principal, then in this hypothetical, the next month your $1,000 payment may see $600 going to interest and $400 going to principal. Then if you ask your bank to recast, and they tell you that the new payment would be $800, this would still be $600 going to interest and the principal portion would be going down to $200. Many here are confused in thinking this now slows them to put the difference between their previous $1,000 monthly payment and their new $800 payment ($200) towards principal in an interest-saving maneuver. But this is not correct. If they had not recast, their $1,000 payment would already hold that extra $200 portion going towards principal reduction.
Very bad explanation by Mr Ramsey for people on a fixed income or getting ready to retire this is a great tool. Do your own homework there's recast calculators on line. I'm getting ready to try it next month.
Best scenario is do the recast and then pay extra on your principal every month. With some of the money you saved . good luck!
We just recast our mortgage because we were throwing $100k against the principle. Dropped our payment from $2400 to $1800 without making any change to the length of the loan. That felt good. We will likely continue to pay $2400 to pay the mortgage off very quickly.
EXACTLY. But if you cant or don't want to... you now have the new lower payment. He didn't explain it at all!!!! I did it too and its awesome. Lowered my payment almost $500/month. AND you DO pay less interest!!!!
Bethany Boothe
That’s a really good strategy. Some people won’t understand because they will say you could have just made the lump sum payment and not worried about recasting because your still planning on paying your original payment amount. However, hard times do come along and having that option to revert back to your new recasted payment amount could be what keeps you from having to take on new debt or making other hard/bad decisions.
Yes that’s what I’m about to do. I’m recasting, it’s lowering my mortgage payment. I don’t see what the problem is.
Just curious you all, how long is the entire process and what's involved. Thanks
Dave seems like he misses the bus on many things. I am not exactly sure why he believes he is a financial guru.
i did a recast after i received a settlement. I sent 85,000 towards the principle, did a recast (cost 250). The recast changed my monthly payment from $1000.00 to $410.00 a month. Im able to take that 600.00 difference and send towards whatever I want.
How about throwing it at the house to get rid of that entire payment all the faster?
@@granitemoss1451 I had been sending about 2k to my principle. I have no debt except for 16k left on my mortgage. I'm 37 years old. I have a 9 months emergency fund. I have prepaid all my regular bills in advance up until March. I have a job ending the end of this December. I will be tapping into my emergency fund to pay for a medical billing and coding course. I'm not a shopaholic. I think I have been spending that savings wisely.
Recasting is awesome. He didn't explain it at all. I did it too. I owe $14400. Cant wait!!!
Granite Moss
Because some of us need that extra money to live. We refinanced to a 15 year in 2014 but now due to an injury (with settlement) I am making a lot less. Recasting with a chunk of that settlement makes sense. It gets our principle way down and makes our payment manageable in this new normal. If I am able to earn more in the future then I can go back to paying more per month. Recasting gives you a stop gap measure when life happens. I also could have put that money in the bank and used it to subsidize my payment but at least it’s earning 3.25% by prepaying principle instead of the measly 0.25% a saving account would give me.
Normally there is no charge for a recast. You paid a junk fee of $250.00
I think Dave is wrong all around.
He is correct
The part left out is if you are diligent about paying down the principle, and you recast to get your payment down by $200 - that's an extra $200 a month you can apply to your extra monthly payment that was unavailable before you recast. This seems pretty simple, am I missing something?
I've recast and done exactly this. It cost nothing on one house, but another lender refused to do it and there's no way (I was told by the bank) to know at the time you are purchasing the home whether recasting is allowed in the future. Still not sure I believe WF, but that's what they told me when I asked what I had to ask for to ensure I could recast my next mortgage. Chase on the other hand, had me recast within a month. Seems more to depend on the lender than the bank - which I didn't realize (and still don't understand) are not the same thing.
I was thinking the same thing. Dave completely left out that part. The extra couple hundred of dollars could go towards anything but it’s also good just to have some breathing room.
This logic is entirely faulty. I’m a mortgage officer. If your payment was $2,000 and $1,300 went to principal and $700 went to interest, and you recast down to $1,800, that next month $1,100 would go to principal and the same $700 would go to interest. That extra $200 is just less principal payment. You are not saving interest.
Generally people take a Recast after the sell of another property that occurs after the purchase of the mortaged property.
We wanted to keep back a little instead of paying off the entire mortgage and liquidity to use for our renovations. I didn't want to touch my investments and savings. The Interest rate was low and remained the same and our mortgage is now recast at $23K. The recast allowed us to go from $2100.00 to $108.00 a month mortgage payment. Now I have $2000.00 to invest toward complete mortgage payoff and use for purchases for renovation materials and labor. Also there is no pre payment penalty on this 30 year so I will pay off in less than 2 years.
He left out a big reason for recasting...lowering your monthly payment. Yes, of coarse it makes sense to just simply prepay principle and payoff the mortgage much sooner but recasting allows you to use that prepayment to give you more room in your budget. I would rather have my money safely stored in my homes equity earning 3.25% than in a savings account earring 0.25%.
I would love to be able to just throw the lump sum I have at principle and take my mortgage from 9 years left to less than 5 years left but life throws curves and paying almost $1600 per month for 5 more years doesn’t look possible. If our income goes up we can always revert back to paying extra principle each month but at least in the meantime that money will be making us extra $100 per month. It will not be realized as equity but rather money we get to keep in our budget.
Dave would probably say I should instead invest that money in a good mutual fund because it would earn much more than 3.25%. As nice as that would be it would strain our budget too much keeping up with a $1600 monthly payment and would likely put us in a place to need to borrow money. We were able to keep up with that 15 year payment for 6 years but our income was $60,000 a year then and now it is about half that.
Whoa whoa whoa. You ARE NOT earning 3.25% in your house. You are PAYING 3.25% interest. That is an entirely different thing.
Just keep paying that principal as much as possible prior to the monthly payment.
Or take that money and put it into an index fund inside of a roth IRA and earn 6-10%/year and you'll have millions in a couple decades.
Better use of your money. Opportunity cost.
@@MichaelP-ke1tm You are conveniently ignoring the risk factor with your method.
I'd never even heard of recasting before this video.
It can be used effectively in certain situations. If you are buying and selling your home, and the home sells after you buy, you can then put all your proceeds from the sale to reset your mortgage payments. If you aren't concerned about making your mortgage payment, then yes it is pointless. However, if you are concerned you won't be able to make your full payment in the future, then recasting would make sense... It isn't very common or needed often, so many aren't aware of it.
True. The banks don't want you to know because they dont make anything on it and you pay less interest because you knock the principle down faster. They want you to refy with closing costs and a new longer loan.
In paying principal payments, I'd darn well want to be able to check my balance regularly on the bank's/mortgage company's website. There was a big bank a few years ago - can't remember which - that took principal payments and applied them to monthly payments; the customers ended up paying many thousands of dollars that weren't applied to their principal.
I keep the chart Dave explains; principle, interest, remaining balance. And when making extra payments I actually see my current payment plan jumping. Keeping the chart is very encouraging to make extra payment especially at the beginning. You will see big jumps at the beginning of starting making payment more likely if you have 30 year mortgage because it is more leaning towards interests than the principal.
Where did I get this chart ?
You made a huge mistake here, therefore giving people the wrong information. “RECASTING” DOES NOT STRETCH YOUR TERM OUT FOR A LONGER PERIOD OF TIME. IT STAYS EXACTLY THE SAME! what you described is a “modification”
No, he was right. You’re wrong.
If I have a 200K loan and I want to put 50K towards that loan to lower my monthly mortgage payment, then paying a $200 fee to recast the mortgage is worth it. The recast recalculates the monthly payments based on 150K instead of 200K. Not only do you have lower monthly payments, but you save on interest. The down side is you cannot change your interest rate or term...so if you have a 6% 30 year fixed...that stays the same. If you want to change your interest rate and term, you would need to refinance...which is expensive due to closing costs.
Yes I was going to refinance but I ended up recasting it was a better option for me.
Let's be clear...if I have a 6% 30year fixed mortage and I'm 10 years into that 30year mortgage (20 years left), are you saying if I recast then I end up with a 6% 30 year mortgage all over again? Sure it's not with a 6% rate with the remaining 20 year term?
I’m lucky than my interest rate is 3.6%
It does not save you interest. You actually pay MORE interest, than if you just paid off your loan early with higher monthly payments. But you get more time to pay off your loan.
@@enufots4621From what I understand: 20 Years if recasted
30 years - what Dave described but I don’t know what that is.
I was told that recasting is pay a lump sum on principal and have the mortgage company do a new recalculation so you end up with lower monthly payments. The interest rate stays the same and the Final payment date stays the same.
But you have to get permission from your mortgage company to do this.
This is true. The only benefit is that it lowers your monthly minimum payment which could be helpful in times of trouble. It is not an interest saving strategy.
How many people have recast at some point? When I Recast with Mr. Cooper it did not cost anything. Simple one page document. Continued to make same payment but was committed to a lower payment.
Thanks for sharing. Good to know, because I am about to recast with Mr. Cooper myself.
@@PCConditioning let me know if its still free I was reading its $250 fee. I haven't called them yet. I would like to do this at some point sooner than later as well!
You can recast and still pay the same payment, then you are the same as before. The benefit comes when you are low on cash and now you have a lower required payment to make. So recast is by default better.
Recasting will lower your monthly payment if you pay off a large chunk of your mortgage before recasting it.
You are correct. I feel like Dave didn't really explain what recasting is or what it does.
Exactly. You have to pay off a large chunk in order to recast. THATS WHAT IT IS!!! A new lower monthly payment based on a lower principle balance. Why didn't he say this?????? I did it and it lowered my payment $500/month.
@@peartfaldo How much did you have to pay to lower it by $500/month? That's big time savings.
@@kend9388 $10000. Saving a TON on interest. I only owe $13107 now. Highly recommend it. Just check with your lender. Im pretty sure Chase does it for free. There is basically no paper work at all. One page you sign and thats it. No credit check...no income verification...nothing.
Thank you for clarifying
Let's just assume that anything your BANK is willing to do with your loan or mortgage is something that's designed to benefit the BANK, not you.
Not true with a recast. Some even do it for free. All a recast is...is recalculating your monthly payment based on a lower principle balance to help with cash flow. THATS IT!!! in the end you DO pay less interest. This wasn't explained here at all.
peartfaldo, Yes, you keep the original balance and the same interest rate and take those two numbers and stretch it over a new 30 year payoff period, lowering your PRINCIPAL payment, your interest paid per month stays the same. So if you are paying less principal a month, the amount of interest you pay is higher if you make minimum monthly payments. It’s an advantage if you want more cash flow, not if you want to payoff the mortgage faster.
E Mansini
Wrong. When you recast you don’t stretch your mortgage back out. You keep the exact same payoff date. Recast always involves a prepayment. The bank uses those cumulative prepayments (or one lump sum prepayment) and then recalculates what you will pay each month for you’re remaining number of payments. If you prepay and don’t recast then you will payoff your mortgage early.
I pay the normal monthly mortgage plus $200 towards principal every month, so in theory my payments should be going down every month, right? I assume the smart move is to take my xmas bonus and put that towards principal as well, right?
Your payment does not change but the amount of interest payed each month goes down and the amount of principal paid goes up.
Payment stays the same, but you are charged less interest. Keep making the extra principal payments like you already are.
Picking up pennies from the floor helps towards the principal as well......
Not when you factor in the opportunity cost.
The payment will stay the same but your loan payoff date will move closer to the present day, shortening your loan, provided your extra money is designated as going toward principal as you said.
Did not answer the question of pros and cons of doing a recast!
The only benefit of doing a recast is you get a lower monthly minimum payment amount. That’s it. There’s not much of a con other than maybe a small fee.
Off topic, but here in Cincinnati, all my ads are for a Buy Here Pay Here car lot!
I prefer any loans I have for payments to lower a little when I pay extra or pre-pay upcoming payments
I don't think Dave knows what recasting is at all..... You do not stay indebt longer..You stay indebt for the same period as your original mortage but you pay less monthly.
No, im a mortgage officer, he’s absolutely right.
I think they wanted some clarification on how recasting worked. Failed to explain that part.l to them.
Banks always have a new scam
This isn't one. He didn't explain what a recast is. Its awesome. I did it.
Mortgages are calculated daily and charged monthly.
The whole point of recasting Is to free up more money a month. In my case I paid 60k to knock off my pmi 92$ and 440$ of payment . I started at 194400 I'm 3years in owing 158k currently. My p&I started at 956 plus 92$.I'm paying down to 100k and I'm recasting and my p&I will be 516$ total payment was 1627 now it will be 1095
Excellent explanation of how mortgage interest works.
Dave really missed this one. Prepaying interest on a given month doesn’t change anything. It just ends your loan quicker and takes months off the back end. Recasting for a de minimizes fee makes sense for some. It lowers your monthly payment and you can now prepay more each month with the same out of pocket spend since your amount due is less each month. Also is helpful if you are unemployed you have a little more breathing room.
This guy misses the mark sometimes
Actually, he’s right and you’re wrong. A recast doesn’t change how much you can prepay your principal in any way.
*If it is your home pay mortgage of fastly*
Black Vito - Moneyology
Yeah...I think. What?
You dont save interest. But keep paying the same amount even after the recast and that would increase the amount going directly to principal and pay the mortgage faster. Am I crazy here?
Because many people who recast apply a large sum down on principle to further lower the loan it does save on overall interest in that higher amt of loan 🤷
Recasting a loan can be a prudent financial strategy for contractors, as it provides flexibility and a safety net during periods of economic uncertainty. For instance, if a contractor is currently paying $2,000 per month on a loan and recasting reduces the monthly payment to $1,500, they can continue paying the original amount. This way, they have the option to lower their payments to $1,500 if financial challenges arise. Recasting can be a valuable tool when used judiciously.
I want to know what kind of deal Dave has with YETI. He and Chris Hogan display those things front and center like they're being paid by the minute.
Yup, and this question was the “blinds.com question of the day”.... the guy knows how to make money....haha
Well it's a branded Yeti with his logo. Yeti is a high quality product so not surprised he'd use it for his company's souvenirs/stuff.
First of all, YETI is a gift from god. Highly recommend that product. It can keep my coffee warm for hours.
Neat. My mortgage lets you recast, and I was wondering if it was worth doing. Thanks, Dave!
this didn't explain what a recast is. its worth looking into. I did it and its been awesome. gives you choices depending on how much it knocks your monthly payment down. It DOESNT extend the mortgage. You keep the same one your are in.
I just completed a Recast two months ago. You have to make a large payment toward the Principal... once complete, the bank will recalculate (recast) the principal and interest over the REMAINING term of the loan, in turn reducing your monthly payment. You can then keep your monthly payment the same (as before the recast) which will end up being more of your monthly payment going towards principal reduction and thus paying off your loan a little sooner. Check with you're loan servicer/bank to get the details on what minimum payment is required to do a recast. If you plan on making a large Principal reduction payment, Why wouldn't you do the recast?
some banks---chase dont require a large payment AND they dont charge to do a recast. if you have been putting extra towards principle for a while hen you don't have to put a lump sum down with them. Wish I was with them. I had to put down $10000 but I glad I did it.
peartfaldo how much did ur mortgage pymt decrease if u don’t mind sharing?
peartfaldo how much did ur mortgage pymt decrease if u don’t mind sharing?
I have a 6.6 percent interest rate, does it make sense to send more towards the principal each month? What if we don’t plan to stay at the property for 30 years?
This was a terrible explanation of recasting. Recasting is a good thing! The lump sum payment is applied to your principal, which reduces the total interest you’ll pay over the life of the loan. Your monthly payment is also reduced and your payment term stays the same.
You can call your mortgage servicer and simply ask…if I recast and put …towards my principal, how much will my monthly payment be going forward?
The lump sum against principal is the good thing. The recast itself does not help save money in any way. All the recast does is lower the monthly minimum payment.
@@TheRomans9Guy lowering the minimum payment is the primary benefit of the recast. If you just write a check for $200K and tell them put it towards your principal, your monthly mortgage payment will be the same next month, you’ll just have less months to pay.
You want the monthly financial relief of the recast, the lower monthly payment.
@@jaayeee24 Right. Except, as evidenced by the comments here and interactions with so many customers in real life, most people are confused and think a recast saves you on interest payments. That’s why we’re clarifying, no, the savings comes from the extra lump principal payment. The sole benefit of the recast is to lower your monthly minimum payment.
So recast then take your savings and apply it to the principal?
If you want to
Have had to borrow from mortgage for new roof, house repairs, to paint house. No choice really but I'm not complaining. Rather preserve my house than have it paid off and ruined
Victoria Campbell sell the house and down size. You can't afford your current house.
Keep your investment in good shape!!
You need to figure out how to fit 'sinking funds' into your regular budget for such things. All you're doing now is keeping yourself trapped in debt in a nice-looking house you can't afford to keep up.
Thanks for advice everyone, I did the repairs years ago and I'm now running an airbnb. I love the privacy of a big section and my dogs and grandchildren do too
@@victoriacampbell5877 Good for you!! Sounds like heaven.
I was told that there are mortgages that don't change the interest/principal payments until the end of the loan if one pre-pays principle. In other words, if one has a $100,000 mortgage balance at 4%, the next payment will be 100,000 * .04 + some principal. If you pay 40k off in advance, your payments will stay the same but you'll have fewer payments once the other 60k is paid off which will obviously be sooner since the 40k reduced the principal. As I'm writing this I'm realizing it sounds ridiculous but I thought I heard it years ago. Any truth to that? Or are most typical mortgages ONLY based on the remaining principal as Dave says?
Craig Wollman
Like Dave said, prepaying won’t change your required minimum payment, but it will reduce the interest charged and thus you will pay off the loan sooner.
Your loan payment will stay the same as per your loan papers. But you will be paying less interest every month so more will be going to your principal so you'll paying the loan off months/years earlier. Plus saving a boat load of money on interest. I paid mine off 21 years early and saved over 200k in interest.
td li yes, and one’s mortgage deduction is reduced.
Craig Wollman
Mortgage deduction=useless.. The standard deduction is $12,200/$24,400.
My wife and I pay $2400 in mortgage interest each year. Most common people pay maybe $5-$6k. Even if I wrote off groceries, cable, cell phone, car insurance and all the food our four kids eat we couldn’t come close to that $24,000 mark. What are you guys writing off? Ever heard of IRS audits?
Dave is right, most typical mortgages calculate the amount of interest due and payable each month based on that current remaining principal balance.
Im still confused. We recently bought a new home and sold our previous home two months later after we purchased our new one. We received money from our previous home. Which we want to put it towards our current mortgage. Our plan is to pay off this home as fast as we can. We’re blessed to be able to pay our mortgage and add additional $500 towards the principal every month. Is it beneficial for us to just make a one time principal payment or do a recast ?? What is the difference. I understand that with recast the monthly payment reduces and that it will re-amortized to our current remaining loan life. But if I make a large one time payment towards principle - i can literally cut off 11yrs off my mortgage vs still leaving me at 29yrs. So, is one time principal payment better then recast ?
300k house payment for just principal and interest at 3% 30 year is $1,265. If you put 100k into it to recast your payment comes down to 843. You can keep paying more per month, but if you lose your job or have a rough patch then you can go down to the minimum 843. So its really a question about self discipline and if any life changes occur.
At 300k Minium payments you would pay 155k Interest, at 200k minimum payments its 103k in interest.
A large principal payment up front is more beneficial as it saves the most interest. Request a RECAST after making a large chunk. This will drop the required monthly payment. The key is to continue making the original payment amount and applying the additional to the principal. If something happens in life or an opportunity arises you are not committed to the higher payment.
How did it work out for you?
I just heard about recasting last week and am trying to figure out if I should do it. Say I have the required $10k to either apply towards principal, keeping my loan exactly as-is. OR, use that $10k for a recast. I understand it'll adjust my monthly payments to be lower, the interest rate remains, and the loan length remains, and there's a fee of a couple hundred.
Then say I keep making my current payments...so higher than necessary once I recast. Say I put that extra towards principle. Assuming I do this for the length of the loan, it seems that recasting is worthless? It seems it would only serve as wiggle room if I were to fall on hard times and really need that lower payment? Because if I just go with the lower payment..... without any extra, it seems to me I would end up paying more interest overall since I'm slowed down on payments..... longer to pay = that much more time to keep paying interest. Someone tell me if I'm following and making sense. :)
Incorrect! Normal principal reduction payments reduce the interest you pay and shorten the term (the payoff timeline) of your mortgage. However, recasting AND continuing to pay your current payment each month nets you even more money because recasting, by both making a principal reduction and KEEPING your original loan term, lowers the absolute dollar amount of interest you pay per month. (The lower required payments post-recasting are an added bonus.) If, after recasting, you continue to make your current, higher payment each month, you will be overpaying and putting more money toward the principal each month than you otherwise would after just a principal reduction payment, both proportionally and absolutely. Plug everything into an amortization calculator if you don't believe me. The only monetary downside of this strategy is the nominal fee you have to pay. Think of it this way: if you've just reduced your principal by a big chunk, would you rather 1. pay off your mortgage early, or 2. recalculate your mortgage payments based on your new, lower principal balance + your original mortgage termination date in order to reduce your overall monthly payment and the absolute dollar amount of interest you pay each month? Of course, if you choose option 2 and only pay the new, lower minimum payment for the life of your mortgage, then the bank wins. But if you pick option 2 and then overpay, you will win big time AND pay off your house sooner AND have more flexibility in your budget if needed. Recast and overpay!
@@pwelchster Thank you so much for the reply! :)
@Trixie76 You're welcome! However, I just plugged in a bunch more numbers and found that recasting does NOT save you interest overall if you keep paying your current amount as opposed to simply doing a principal reduction with the same amount. It's very close, but recasting increases the absolute dollar amount of interest you pay each month as opposed to a principal reduction. Dangit!
This serves as a safety net in the event of financial difficulties. With a mortgage term of 15 to 30 years, it primarily functions as a financial safeguard.
Pwelchster’s first, very long post was totally incorrect, their follow up was right. A recast saves you nothing compared to your initial payments if you were to recast but then still make the original payment each month. In essence the exact same amount of principal goes to pay off your balance. A recast’s benefit is only to lower your monthly minimum payment in case of hard times.
Recasting would be good if you bought a house before your current one sells, and you apply your profit from the original house when it sells
I disagree. As many mentioned before, it's good for anyone who wants to lower their monthly payment, keep their interest rate ( in case interest rates rises) and not add additional time to their current loan. This statement came up in a google search of mortgage Recasting, and that's simply not true.
Why do people think you are saving on interest. The interest is actually more. The only reason why interest goes down is because of the lump sum. You dont need a recast to put a lump sum.
How is interest more (rate)??
I am in the process of buying a home, and selling a home. My new home closes before my current home, therefor I have $250k equity tied up that I can’t use for my downpayment. I will recast (it’s literally just changing my payment to where it would have been if timing had worked out and my current home closed first)
Bingo. By only paying off principal and not recasting, you shorten the life of the loan. Recasting re-expands your loan to the original loan term. So you end up paying more interest if you recast. If you are financially able, best option is to pay down the principal with large lump sum, then DON’T recast. This shortens the length of your loan, hence less interest paid overall.
@@Kevin-ty4im false, recasting recalculates your monthly payments with your new lower principal and your current interest rate (thereby lowering your monthly interest payments) for however long you have left of your loan.
@@erikapeterfi Thank you. The loan and the term stays the same. So if I have a mortgage at 400k -- pay 50k down and recast it -- it will take my 400k loan and whatever that payment was and change my monthly payment to what it would be on a 350k mortgage. You can pretty much play with the numbers on any real estate site like Zillow, Realtor and others...to roughly see what your different monthly payments could be. Then you can continue to pay extra towards your principal knocking your mortgage balance down even more.
I am close to retirement and it would be great to lower my payment.
Sorry for asking to have a quick answer, what do you mean principal of the payment...? I'm not American sorry...
Desmond Duece Your monthly payment is combination of interest and principal. Principal is the amount you owe on the loan. Interest is the amount charged on the outstanding balance of the loan. Example, if your mortgage balance is 100,000 dollars on a 5% interest rate and your monthly is $1000.00. 5% interest on 100,000 is $5000.00 DIVIDED by 12 is $416.66. Your monthly breakdown of that payment is $583.34 in principle and $416.66 in interest. So you paid off $583.34 off the original amount of $100,000. So next month your payoff principal amount drops to $99,416.66. The next monthly breakdown on a $1000.00 payment is $414.24 in interest and $585.76 in principal. If you pay extra principal each month, the more you will pay in principal and less in interest. An extra $50, $100, $1000 etc will go far in paying off the loan faster and paying less interest to the lender.
Or refinance, lower your payment, move, and let someone else pay ALL of the interest but, that’s none of my business ☕️ 🐸
And who is that someone?
Ashley James Tenant
@@CaseyBurnsInvesting
I don't why but her saying "Who is that someone" made me die laughing 😂
That was funny..."who is that someone"
Mathematically leverage makes a lot of sense. But it is risky. I see a lot of guys like you suggest things like this is the comment sections of Dave’s videos. You are very intelligent men and women and your advice is solid. But it does not take into account that most of us Ramsey followers are not looking to get rich we are looking for financial peace. Most of us have been through something like Dave and had leverage blow up in our face. Rental properties are great until you get into a car accident or get cancer and the economy tanks like in 2008 and you can’t collect rent because your tenants are broke. You can’t throw them out and now have to pay to keep their heat on. You can’t sell the properties because they are all underwater. And you can’t work because you are injured or sick. I lost a child in a horrible way. I lost my mind for a while and was institutionalized. I have made a full recovery but my mind is forever changed about risk. Once you go through a life changing catastrophe leverage no longer has the appeal it once had. You are probably a very smart guy and think it can’t happen to you. Dave Ramsey is a smart guy and it happened to him. Unfortunately there is no correlation between IQ and luck. No one can outsmart the risks associated with leverage. It is gambling. But when you are commenting on Dave Ramsey remember that you are basically trying to convince a bunch of ex gamblers to go to the Casino. No thanks, I’m good. Lol. Get rich quick schemes do work, leverage works, but I am loving life without stress. Having no debt has changed my life. But they that’s me. I wish you nothing but luck in your investments.
Jack Kelly good luck to you as well
I am so torn. I feel very comfortable putting about $50K toward my $300K mortgage balance. I am not sure if I should “recast” with the $50K or just pay the $50K toward principal on the current note. Anyone able to share some thoughts? Thanks!
I am a mortgage officer. I can answer your question. The lump sum you’re paying to the principal is one thing, and of course it’s good. The recast is a separate thing altogether and all it does is lower your monthly minimum payment. It does not help you save money. It helps make your minimum payment lower, in case you ever ran up against hard times and a lower payment would help. If the fee is $0 or very low, go ahead and do the recast. But then you can decide if you want to pay that new minimum payment or keep paying the larger payment, which puts more towards principal and pays your loan off faster. Up to you.
Edit: one clarification, a recast does not change your note, your note will stay the same either way. A “refinance” is what changes your note and you don’t want that right now!
@@TheRomans9Guy thanks! When you say that a recast does not help you save money, to clarify, it would bring total amount of interest paid on the loan wouldn’t it? Thanks again.
@@ScanFan_Ed In your scenario, you’ll pay the $50,000 towards principal either way. And you’ll be left with a $250,000 loan. Let’s say your interest rate is 5% and your original payment was based on that $300,000 loan. When you got your loan, that $300,000 at 5% gave you a 30 year fixed payment of $1,610 monthly. $1,250 would go to interest and $360 would go to principal on the very first month.
If you don’t recast, that next month when your balance is $250,000, you would only owe $1,014 in interest. So out of your $1,610 payment, $568 would go to principal and you’d start paying off your mortgage much more quickly than the originally planned 30 years.
The recast offer would be something like $1,342 per month. Again, the same $1,014 would be going to interest and $328 would be going to principal. The interest doesn’t change just the principal, so the recast itself isn’t providing any extra savings.
Prepaying interest is actually illegal. Pay attention to you lender.
Recasting is NOT prepaying interest. Has nothing to do with it. He confused everybody. Recasting is awesome.
I'd rather invest than pay off my mortgage early since interest is so low. It's like free money.
Interest rates are like 3.5%.
With 2% inflation per year + 2% on a savings account, you're practically getting paid to have a mortgage rather than paying down the principle.
Instead of the 2% savings, put $6000/year into an index fund inside an IRA and you'll get 8%/year.
That's a 10%/year return with inflation + IRA while you're only paying 3.5%/year for the mortgage. It's more than than just free money. It's the key to becoming a millionaire within 30 years while only making 50k/year.
Just 6k/year in an IRA rather than paying down the mortgage + the 6k is tax deductible.
@@MichaelP-ke1tm Exactly!
And 100% of home that go into foreclosure had a mortgage on them. Do plane who make this comment repeatedly, on every house video, ever consider risk?
@@GitarPicker to each their own buddy. Everyone has to consider their own risk / reward. I'm young so I'm willing to take more risk for more potential reward.
@@bluecollarmoneyinvestingch396 I'm not risk intolerant, but it depends on what is being risked, my home is not on my willing to risk list, which is why I am paying off ASAP. The security of a paid for home will allow for more investment without having to bet the farm so to speak.
if you can afford your current payment, don't recast, put the money to principal reduction
That's what a recast is. After you pay down the principle enough you can choose to recast OR RECALCULATE your monthly payment based on the lower balance. YOU DO save on interest. He didn't explain what a recast is.
peartfaldo
You don’t understand it either. A recast requires a prepayment of principle. If you recasted without prepaying some principle you would end up with the exact same payment.
Why do you respond like people are stupid?
It's just the bank trying to con people again with shinny products 🤷
"Shinny"?
Con? lower your mortgage payment by extending the time.
the opposite of paying more.
You are retiring on a fixed income, lower payments.
@@aolvaar8792 The final amount is the same. ..
@@mphomolapo1562 ???you pay more by extending the term.
15 year to a 30 year,
take a $1100/mo lower to 700/mo
Banks usually charge a fee of $300-$500 to do this, but it isn't a product they try to sell.
Paying extra principal is good but investing is better. I do both.
Intelligent Investor you are leaving out risk. investing is better until it isnt - the economy goes south... in that case paying extra is better
besttech10 I have set my asset allocation based on my own risk tolerance. I went through 2008-2009. Believe me I know risk.
Intelligent Investor So, do I continue to pay down my mortgage or should I also begging to invest...even if it’s a modest amount per month?
StevieJ D That's a personal financial decision. It's completely up to you. Also they make investing seem far too complicated. What I do is continue Roth IRA contributions weekly into the same funds, also I do a small percentage into my work 403b and I don't listen to the noise. Markets go up and down but over the long term they go up 8-9% past 90 years
Sort of what I did invested and used that to pay off my house in 4 years.
Dave is wrong, Mortgages are not simple interest, they're amortized. Huge difference.
Please explain
@ Owner... and..... you're wrong. Every installment loan is amortized if you pay it evenly until it's gone. Mortgages are simple interest. Why do so many people think they are not? You simply owe interest on the balance every month. Simple interest is not the same as compound interest.
Let me explain more clearly. Compound interest compounds on the trailing interest amount every month. A mortgage does not carry an interest amount from month to month. Each month it charges you at a simple interest rate based on the principal balance, which lowers every month. Not the interest balance, since there is no interest balance that carries over.
Your right they are amortized. They are amortized at a simple interest calculation.
Amortize-definition:
-reduce or pay off (a debt) with regular payments.
Dave you’re amazing
If your main goal is paying off your mortgage early, then doesn't recasting help with that? If I can lower my monthly payment by $500 isn't that $6K a year that I can save and throw directly on the principal? Is there a limit to how many times I can recast? It seems like lump sum payments on the principal will take me a lot further than basic monthly payments. Also, if I refinance instead in a rising rate environment won't that mean a higher interest rate and more interest paid?
But most people have the goal of lowering payments.
No, a recast does not help pay off the loan early. If your regular payment right now has you putting $700 towards principal, and you recast a lower your payment by $200, that means only $500 is now going towards principal. If you put that $200 difference back into your mortgage each month you are essentially now making the same original payment. No advantage.
The lender WANTS you to draw out the loan as long as possible. A 30 year mortgage paid off with minimum payments is BANK for the lender over the long run. By recasting, you are paying less every month, but you are staying in debt longer. Make extra principal payments on top of your monthly bill and free yourself from your lender’s leash.
Norman Smith I know how interest works, you obviously didn’t read my post. This “recasting” option while lowering your payment, in turn you are lowering the amount of principal applied every month. It’s a sales pitch for lenders to sell mortgage holders to carry mortgage balances longer.
No you're not. You keep the same loan. It doesn't extend your loan. Its a simple thing to do. I did it and its awesome. Frees up money and you DO pay less interest. If you make your original payment it knocks your loan down very quickly because you didn't pay interest on a lot of the money you borrowed. He didn't explain what a recast is.
Why pay the mortgage off early when you can buy avacado toast instead!?
No Dave your wrong…. You reamortize the mortgage. It changes your interest amount by paying your principal down. It doesn’t change your loan terms at all.
No silly goose, you’re wrong. Your loan reamortizes every month anyways. If you make a large principal reduction this month, the amount of interest that will be paid out of your monthly payment next month will go down whether you recast or not.
@@TheRomans9Guy interestingly wrong . But hey do you . Don’t worry about me
@@user-su5fc1ld9i are you not in the U.S.? Maybe that would explain the disconnect.
Go trolling elsewhere
@@user-su5fc1ld9i no personal attacks, just correct misinformation.
Just get a home you can afford and pay it off quickly instead of these games.
Its not a game. He didn't explain it.
Rekt
Principal goes down, so when you recast the term/interest stays the same but they payment goes down, because the principal is less. This is going to be used more for people who got a great interest rate but either bit off more than they could chew monthly or got a 15 year loan or less and realized it sounds good but they want more money on hand. Usually it cost a principal payment of $10k or more and the bank usually refuses because it circumvents the sneaky clauses or penalties you usually get added to the loan when you refinance. When you refinance they usually put a penalty for paying it off early, etc. If you have the minimum principal paymet and have a great interest/term, recasting is the best strategy. Its not popular because if it benefits you, it usually doesnt benefit your bank and they refuse to do it. In 2023 with the banks investments not making as much because of COVID investments, a rare opportunity arises, the bank needs money on hand and if you have the cash in another bank, its a win-win for the bank. If your loan and cash is with the same bank, they usually wont do it because I loaned out x3 your cash and make interest in your loan...why would I lower your monthly payment/ my cash flow? with your cash/ my x3 loaned money?
Actually, the bank has no issues doing these at all. And prepayment penalties are almost nonexistent in the marketplace.
He’s wrong. The interest, as a mathematical fact, is reduced, along with the principal. AND you have a lower payment which gives you more options. It doesn’t reduce total P/I as much as a lump sum pay down (which requires monthly payment to be same despite earlier payoff), but it for sure reduces interest vs maintaining the existing loan. @daveramsey WHY DON’T YOI CORRECT YOUR ERRORS?!
Oh God no. The interest would in fact be increased. I’m a mortgage loan officer, trust me, you’re wrong.