By Carline Martin
Q: Various circumstances prevented me from refinancing my mortgage while interest rates were low. I am in a better position now but interest rates have increased. I’d like to lower my payments. Is there anything I can do to make this happen?
A: In the past several years, many homeowners have been able to save themselves a great deal of money on their home loans by taking advantage of low interest rates and refinancing their mortgages. However, not everyone was in a position to do so. Now that rates have been increasing, many, like yourself, feel that they have missed a golden opportunity. Although there is no indication that rates will be dropping any time soon, there are ways that you can either lower your payment or shorten the length of your loan. If you are not familiar with recasting, this may be an option you’d like to consider.
Recasting your loan may be an option that will work for you. You mentioned that you are in a better position but did not say how. If you have saved or received a large sum of money through a bonus or inheritance, for example, or if you have just been diligent at saving, you can make a large, lump sum payment to your principle and ask your lender to reamortize your loan. Your interest rate and the term of your loan will not change but your payment will be lower because your principal is lower. Because you are not applying for a new loan there is no rigorous application process to complete.
There are, however, some restrictions/requirements for making this adjustment to your mortgage. First, your lender is likely to require a minimum lump payment to be applied toward your principal. This amount is, typically, $10,000 but you should check this with your lender. Also, many lenders will charge a servicing fee for this adjustment, although it is, generally, much lower than the closing costs for refinancing.
Although recasting does not require you to complete an application process, there are still some conditions you must meet to qualify. Government rule prohibit recasting of an FHA, USDA or VA loan. Some lenders will allow recasting of jumbo loans but this is something you should check with your lender as this is not the case across the board. Additionally, your lender may require you to have built a certain amount of equity in your home in order to qualify for recasting, as well as a history of on-time payments.
As with most things, there are pros and cons to recasting your mortgage. Although recasting will not lower your interest rate, it will lower your interest payment based on your lower principal. For those with an already low interest rate, it is possible to keep that interest rate and lower your payment further by recasting. Also, as stated earlier, there are no credit or appraisal requirements or expensive closing costs. The only cost incurred is a small flat fee, typically, $200-$300. Bear in mind, however, that not all lenders will allow recasting. You need to check with your current lender to see if they will allow this and if your loan qualifies.
Recasting shouldn’t be confused with the option of making regular mortgage payments that are higher than your required payment. This approach will not reduce your payment amount but will shorten the time it takes you to pay off your loan, often by many years. The same is true for refinancing, which will allow you the option to refinance your loan for a shorter term; for example, refinancing your 30-year mortgage for 15 years. With recasting, your additional payment is made at one time and your loan is then reamortized, reducing your monthly payment but not shortening the length of your loan. Although, refinancing at a lower interest rate may allow you to shorten your term and/or reduce your monthly payment. Recasting will not do this as it does not change the terms of your current loan. However, by paying down a large chunk of your principal, you may be able to pay your loan off sooner by continuing to pay more than your new, lower payment. Check with your lender to make sure they will not impose pre-payment penalties.
OTHER STUFF IN GREENWICH – It’s highly unlikely if you have been in Greenwich for more than 5 minutes that you have either not heard a noisy leaf blower or heard talk of how disturbing they can be. In fact, while I have been writing this article, I had to close my window so that I could concentrate over the noise of my neighbor’s landscaper. For quite some time, we have grown accustomed to just dealing with this annoyance as part of life in the suburbs. Recently, however, residents have begun pushing back. While most of us in Greenwich enjoy the convenience of not having to sacrifice our weekends laboring over tedious yardwork, we routinely complain about the noise disturbance that accompanies this convenience. Particularly, when it comes to gas leaf blowers. In his June 9th Community Connections newsletter, our First Selectman, Fred Camillo, posted a link for a group that has dedicated itself to addressing this very issue. If you are among those who feel fed up or downright crazed by noise pollution, you may be interested in this group and their mission. Here is the link that was posted in the Greenwich Connections newsletter: https://www.quietyardsgreenwich.com/
If you have a job to fill this summer or are just looking for an occasional extra pair of hands, why not provide an employment opportunity for one of Greenwich’s best and brightest. OuadJobs is an online job platform that is outsourced by the GHS PTA. Its aim is to provide part-time jobs for Greenwich High School students. Whether you are a potential employer or a student looking for summer work, you may find it helpful to visit QuadJobs.com
SEND ME YOUR QUESTIONS – If you have a real estate or home related question for which you would like a professional opinion, please email me at carlinemartin@bhhsne.com with “Sentinel” in the subject line. Each month, I will provide answers to one or two selected questions. Email me your Real questions. I look forward to hearing from you!
This article does not offer the opinions of Berkshire Hathaway/New England Properties and is not intended to provide legal, medical or tax advice.
Carline Martin is a Greenwich native and Realtor with Berkshire Hathaway/New England Properties in Greenwich. She may be reached at carlinemartin@bhhsne.com or at 203-249-9975.
