Recast vs. refinance: Which option is right for you? 

 In this article: 

• What is a mortgage recast and how does it work? 
• What is a mortgage refinance? 
• The benefits of mortgage recast and refinance 
• Key differences between recast and refinance 

As a homeowner, you may reach a point where you want to lower your monthly mortgage payment or adjust your loan to better align with your financial goals. Two common options are a mortgage recast and a mortgage refinance. While both can help reduce your payment, they work very differently and have different requirements. 

Understanding the difference between a recast and a refinance can help you choose the best path for your situation. This guide explains how each option works, when each may be beneficial and what Desert Financial members should consider before making a decision. 

What is a mortgage recast? 

A mortgage recast is a modification of your existing loan that lowers your monthly payment without changing your interest rate or loan term. To complete a recast, you make a large, one-time principal payment, and the lender recalculates your monthly payments based on the new, lower loan balance. 

Recasting is available on many conventional loans but is not available on FHA, VA or USDA loans. It is also not available on all loan servicing platforms; Desert Financial can help confirm eligibility for your specific loan. 

How a recast works 

A recast involves several simple steps: 

1. You make a large principal payment (often $5,000 or more).
2. The lender recalculates your monthly payment based on the new principal.
3. Your interest rate and loan term do not change.
4. Your new payment begins on the next mortgage cycle.

Because the loan term and interest rate stay the same, a recast is a straightforward way to reduce your payment without requiring a full loan application. 

Benefits of a mortgage recast 

Many homeowners choose a recast because it offers: 

• Lower monthly payments. Your loan balance decreases, resulting in a smaller required payment. 
• No credit check or income documentation. Because the loan terms are not changing, a recast usually requires minimal qualification. 
• Lower overall interest paid. Although your interest rate stays the same, lowering your principal reduces the amount of interest paid over time. 
• Low cost. Recast fees are generally much lower than refinance closing costs. 
• Easy process. A recast requires less paperwork and can often be completed more quickly than refinancing. 

A recast is most beneficial for homeowners who have a lump sum to apply toward the loan and want to reduce their monthly payment without changing their loan terms. 

What is a mortgage refinance? 

A mortgage refinance replaces your existing loan with a completely new loan. Homeowners often refinance to secure a lower interest rate, change the loan term, remove mortgage insurance or access home equity through a cash-out refinance. 

Because refinancing creates an entirely new loan, it requires a full loan application, credit check, income verification and closing costs. It may also involve an appraisal. 

Benefits of a mortgage refinance 

A refinance may be the better choice when your goals include: 

• Getting a lower interest rate. Refinancing gives you the opportunity to lock in a lower rate if market conditions are favorable. 
• Changing the loan term. You can shorten your term to pay off the home faster or lengthen it to reduce your monthly payment. 
• Removing PMI. If your home value has increased, refinancing may allow you to eliminate private mortgage insurance. 
• Accessing home equity. A cash-out refinance can provide funds for home improvements, debt consolidation or other major expenses. 
• Restructuring your finances. A refinance offers more flexibility than a recast because you can change the entire structure of your loan. 

Recast vs. refinance: key differences 

Although recast and refinancing can reduce your payment, the two options serve different purposes. 

• Type of transaction: A recast adjusts your existing loan. A refinance replaces your loan with a new one. 
• Cost: A recast has low fees. A refinance has full closing costs. 
• Eligibility: Recasts are limited to certain loan types. Refinances are available for most loan types. 
• Documentation: Recasts require minimal documentation. Refinances require full credit and income verification. 
• Potential benefits: Recasts reduce your monthly payment. Refinances offer more flexibility and may reduce your interest rate. 

Choosing between a recast and a refinance depends on your goals and financial circumstances. 

When a recast is the better choice 

A recast may be right for you if: 

• You recently received a large lump sum (bonus, inheritance, home sale proceeds).
• You want to reduce your monthly payment without changing your interest rate.
• You have a strong existing mortgage rate that you want to keep.
• Your loan type is eligible for recasting.
• You prefer a lower-cost, simpler option.

If your main goal is lower payments without a complicated process, a recast is often the most efficient solution. 

When a refinance is the better choice 

A refinance may be the better fit when: 

• Interest rates have dropped since you purchased your home. 
• You want to remove PMI.
• You want to change your loan term.
• You’re interested in taking cash out for home improvements or financial goals. 
• You want to consolidate high-interest debt. 
• Your current loan is not eligible for recasting.

A refinance offers more flexibility but is more expensive and requires a full application. 

Questions to ask before choosing 

Before deciding between a recast and a refinance, ask yourself: 

• Do I have a lump sum available to put toward the principal?
• Do I want to keep my current interest rate?
• Am I hoping to shorten or extend my loan term?
• Do I want to remove PMI?
• Is my loan type eligible for recasting?
• How long do I plan to stay in the home? 

Desert Financial can help you compare both options and determine which approach makes the most sense for your long-term financial goals. 

When to Contact Desert Financial 

We’re always here to support you with clear answers and member-first service. Contact Mortgage Servicing at (602) 433-7097 or firstmortgageservicing@desertfinancial.com if: 

• You want to know if your loan is eligible for a recast.
• You would like help calculating how a lump-sum payment would change your monthly payment.
• You want to explore refinancing options.
• You need help comparing the monthly savings of recasting versus refinancing.
• You recently received a lump sum and want to understand your options.