I write educational posts on buying your home for the first time. I even posted my homebuying book at r/NewbHomebuyer here's the book on reddit.

Here's a post from another sub:

I currently have 30yr fixed mortgage at 5.75% paying 7k monthly. 7k monthly payment is from 4600 interest, 1200 principal and 900 towards escrow. All of my monthly base salary(after taxes, 401k,hsa) goes towards paying the mortgage. I have additional compenstaion via RSU vests that covers my other living expenses.

What are my options to reduce monthly payment?

Two ways to lower your mortgage payment after you've already closed.

Most people only think about refinancing. But there's another option that nobody talks about: recasting.

Here's how each one works.

Recasting

A recast is when you throw a lump sum at your principal balance, and the lender re-amortizes your loan based on the new lower balance.

Same rate. Same term. Lower payment.

No credit check. No appraisal. No closing costs (some lenders charge a $250-$500 recast fee, but that's it).

Example: You bought a home with a $400,000 loan at 6.5% on a 30-year term. Principal and interest: $2,528/month

Two years later, you get a $50,000 windfall (inheritance, work bonus, sold a rental, whatever).

• Option 1: Throw it at the principal. Your payment stays at $2,528, but you'll pay it off about 5 years earlier.
• Option 2: Recast. Your balance drops to ~$340,000 (after 2 years of payments + the $50k lump sum). Lender recalculates the payment over the remaining 28 years at the same 6.5%.

New payment: ~$2,191/month

That's $337/month back in your pocket without refinancing.

When recasting makes sense:

• You came into a lump sum after closing
• You sold a previous home and want to apply equity
• Rates today are higher than your current rate (so refinancing would hurt you)
• You want lower monthly cash flow without resetting the clock

Heads up: FHA, VA, and USDA loans typically do not allow recasting. This is a conventional loan move.

Refinancing

Refinancing replaces your old loan with a brand new one. New rate, new term, new closing costs.

When your rate lowers, and your term extends back out to 30 years, you'll likely land a lower payment.

a better way to refinance

Most people wait for the "perfect" rate before refinancing. They want to drop their rate by 1% or more before pulling the trigger.

But here's where I disagree with the common advice.

If you can refinance at $0 cost to you and lower your rate even a little, do it.

When I say $0 cost, I don't mean "no money out of pocket" where they roll $8,000 in closing costs into your loan balance.

I mean a true $0 cost refinance where the lender credits offset all of the closing costs.

Here's how that works.

Lenders have a chart of rates. Higher rates come with lender credits. Lower rates come with costs.

So if today's "advertised" rate is 6.25%, you might be able to get 6.625% with enough lender credit to cover ALL of your closing costs.

Example chart:

6.875% = $4,700 credit

6.750% = $3,850 credit

6.625% = $2,850 credit

6.500% = $2,250 credit

6.375% = $1,500 credit

6.250% = $0 cost

6.125% = $1,500 cost

If your closing costs total $4,700and your current rate is 7.5%, you can refinance to 6.875% at $0 cost because that credit covers the cost.

Is 6.875% the lowest rate available? No.

Is it lower than your 7.5%? Yes.

Did it cost you anything? No.

That's a win.

Then if rates drop again next year, you do it again. And again. Each time at $0 cost.

The mistake people make is paying $5,000-$10,000 in closing costs (rolled into the loan) to drop their rate by 0.5%.

Then rates drop more 6 months later and they don't refinance again because they're sick of paying costs.

"but I don't want to go back to 30 years"

Don't reset the clock either If you refinance and don't want to add years back to your loan, you have two options:

1. Keep paying the exact same payment you were paying before. The extra goes to principal and you'll pay it off faster than your original schedule.
2. Ask the lender to set the new loan term to match your remaining years (not many lenders do this). If you had 27 years left, refinance into a 27-year term (or pay it like one).

Drop questions if you need help

Sam

I write educational posts on buying your home for the first time. I even posted my homebuying book at r/NewbHomebuyer here's the book on reddit.

Originally shared by u/SamTMortgageBroker in r/NewbHomebuyer — view the original thread.