Mortgage Recast vs. Refinance: What’s the Difference?
A recast lowers your payment after a lump sum and keeps your rate. A refinance replaces your loan with a new one. Here’s how they compare — and when simply paying extra is better than both.
By Bogdan · Updated
You have three ways to change your mortgage when you have extra money or rates move: recast it, refinance it, or simply pay extra. They sound alike but work very differently.
Explain it like I’m 5
Imagine you borrowed 100 marbles from a friend and promised to give back 2 every week.
- Paying extra: you give back 20 marbles at once, but keep giving 2 a week. You finish much sooner.
- Recast: you give back 20 marbles at once, and ask your friend: “Since I owe less now, can I give back fewer each week but finish on the same day?” Your friend says yes, for a small fee.
- Refinance: you borrow from a new friend who has better rules, use those marbles to pay back the first friend completely, and start a new deal. Switching friends takes a lot of paperwork.
Run your own numbers with the mortgage recast calculator.
Side by side
| Recast | Refinance | |
|---|---|---|
| What happens | Same loan, payment recalculated after a lump sum | Brand-new loan pays off the old one |
| Interest rate | Stays the same | Can go up or down |
| Loan length | Same end date | You choose a new term |
| Cost | Usually about $150–$500 | Closing costs, often 2%–5% of the loan |
| Lump sum needed | Yes, often $5,000+ | No (cash-out refinance even gives you money) |
| Credit check / appraisal | No | Usually yes |
| Who can do it | Many conventional loans; generally not FHA, VA or USDA | Most borrowers who qualify for a new loan |
Example: $300,000 left at 6%, 25 years to go
Your payment today is $1,932.90 a month (principal and interest).
Option A — recast with a $50,000 lump sum. The balance drops to $250,000, the rate stays 6%, and the new payment is $1,610.75 — about $322 less a month. Cost: one small fee.
Option B — refinance $300,000 at 5%. A new 25-year loan costs $1,753.77 a month — about $179 less, without needing a lump sum — but closing costs of perhaps $6,000–$15,000 have to be earned back first. Stretch it to a new 30-year term and the payment is lower still ($1,610.46), but you add five years of payments.
Option C — pay the $50,000 and keep paying $1,932.90. No fee, no paperwork, and you’re mortgage-free years early with the biggest interest savings of all — but your required monthly bill doesn’t go down.
How to decide
- Choose a recast if you have a lump sum (for example from selling a previous home), you like your rate, and you want a lower monthly payment.
- Choose a refinance if current rates are clearly lower than yours, you want to change the loan’s length or type, or you need to take cash out — and you’ll stay long enough to recover the closing costs.
- Just pay extra if your goal is to be debt-free sooner and you don’t need a lower required payment.
- Do nothing if your rate is low and the money would earn more in safe savings or investments — and always keep an emergency fund first.
Questions to ask your loan servicer
- Do you offer recasting on my loan, and what’s the fee?
- What’s the minimum lump sum?
- How long does it take, and when does the new payment start?
- Are there any prepayment penalties on my loan?
Frequently asked questions
Is it better to recast or refinance?
If you like your current interest rate and have a lump sum, a recast is cheaper and simpler: one small fee, no credit check, same rate. If rates have dropped meaningfully below your current rate, or you need to change the loan length or remove someone from the loan, a refinance may be worth its higher closing costs.
Does a recast lower my interest rate?
No. A recast keeps the same interest rate and the same end date. Only the monthly payment drops, because it’s recalculated on a smaller balance.
How much does a refinance cost?
Closing costs are commonly around 2% to 5% of the loan amount — for example $5,000 to $12,500 on a $250,000 loan — covering things like the appraisal, lender fees and title insurance. A recast usually costs a few hundred dollars.
Can I recast an FHA or VA loan?
Generally no — government-backed loans (FHA, VA, USDA) usually can’t be recast. Conventional loans often can, but it’s up to your loan servicer, so ask them directly.
Should I recast or pay extra on my mortgage?
Paying extra and keeping your normal payment saves more interest and makes you debt-free sooner. Recasting saves less interest but gives you a lower required payment and more monthly flexibility.
This article is for general education and is not financial, investment or tax advice. Rates, rules and limits change; check current terms with your bank or the IRS. See our disclaimer.