Mortgage recast vs refinance

Both can lower your monthly payment. A recast does it by shrinking your balance and keeping everything else; a refinance does it by replacing the loan. Which one wins depends on three numbers: the cash you have, the rate you could get, and how long you'll keep the loan.

By Ashutosh AnandUpdated September 23, 2026How we calculate

What each one does

A recast (also called re-amortization) happens after you pay a large sum toward principal. Your servicer recalculates the monthly payment over the months you have left, on the smaller balance. Fannie Mae describes it as a payment recalculated after a substantial principal curtailment, over the remaining term. Your rate, your end date and your loan stay the same. There's no new application, and usually no credit check or appraisal, just a fee.

A refinance pays off your loan with a new one. You can change the rate, the term, or take cash out, but you apply like a new borrower: credit check, income documents, appraisal and closing costs, which Freddie Mac puts at 3% to 6% of the loan.

One household, six choices: a worked example

Suppose you owe $350,000 at 7% with 25 years left, paying $2,473.73 a month in principal and interest. You have $50,000 from a home sale or an inheritance, and lenders are offering 6%. The table assumes a $250 recast fee and closing costs of 3% of the new loan.

Calculated with the same engine as our calculators, rounding interest to the cent each month. Closing costs are shown as cash; many borrowers roll them into the loan, which adds interest.

What the example shows

1. A recast is a prepayment with a lower required payment. Recasting cuts the payment by $353 a month and saves $56,017 of interest. Prepaying the same $50,000 without recasting saves $168,394, because you keep paying the old amount and finish 7 yrs 4 mo early. If you recast and then keep paying the old amount anyway, you're done in 17 yrs 8 mo with $222,727 of interest: essentially the prepay result, with the option to pay less in a tight month.
2. Restarting 30 years hides the cost of a refinance. The 6% 30-year refinance has the lowest payment of any choice that leaves your $50,000 untouched, yet charges $405,432 of interest, more than keeping your 7% loan, because it adds five years of payments. Compare refinances at the term you have left, or keep paying the old amount after you refinance.
3. A like-for-like refinance takes years to pay off. Refinancing to 6% over 25 years lowers the payment by $219 a month. Closing costs of $10,500 take 4 yrs 1 mo to earn back from that saving alone. Run your own numbers in the refinance break-even calculator.

How big a rate drop does a refinance need?

The fair test puts the same $50,000 into both: recast, or pay it down at closing and refinance for the same 25 years. The recast leaves you paying $2,120 with $336,350 of interest and fees still to come.

Over the full 25 years, even a half-point drop comes out ahead on total cost in this example. But look at the break-even column: with a small drop it takes most of a decade for the lower payment to repay the closing costs, and most people sell or refinance again well before a loan ends. The bigger the rate drop, the shorter that wait. If you might move within a few years, the recast's tiny fee is hard to beat.

When a recast is the better choice

• Your current rate is at or below what you'd be offered today.
• You've just received a lump sum: a home sale before buying, a bonus, an inheritance.
• You bought a new home before selling the old one and want the payment to drop once the sale closes.
• You want a lower required payment for flexibility, but not a new loan, a credit check or closing costs.

When refinancing is the better choice

• Rates have fallen enough that the break-even on closing costs is shorter than the time you'll keep the loan.
• You want to change the term, for example from 30 to 15 years, or move from an adjustable rate to a fixed one.
• You have an FHA loan and 20% equity: refinancing to a conventional loan can also end FHA mortgage insurance. See how to get rid of PMI.
• Your servicer doesn't offer recasts on your loan.

How to request a recast

1. Call your servicer first. Ask whether your loan is eligible, the minimum lump sum, the fee and how long it takes. Get the answer in writing.
2. Make the principal payment the way they tell you, marked as a principal reduction, not as future payments.
3. Sign the recast agreement if they send one, and keep making your current payment until the new amount shows on a statement.
4. Check the new payment. It should be the remaining balance re-amortized at your same rate over your remaining months. Our method page shows the formula.

Before a large prepayment, check your note or Closing Disclosure for a prepayment penalty. Most mortgages today don't have one, and federal rules limit them where they exist; the CFPB explains what to look for.

Related tools

• Mortgage recast calculator: your new payment after a lump sum, and recast vs prepay side by side.
• Refinance break-even calculator: how many months until a refinance pays for itself.
• Extra payment calculator: see what a lump sum or monthly extra does if you don't recast.
• Should you pay off your mortgage early? Whether the lump sum belongs in the house at all.

For education only; not financial advice. The rates, the recast fee and the closing costs in the examples are assumptions, not offers. Recast rules, minimums and fees vary by servicer and loan type. Sources checked September 23, 2026.