Recasting mortgage could reduce monthly payments

Every loan agreement specifies the borrowed amount, the interest and the repayment period -- but don’t be late on a payment.

According to Equifax, one late payment over 30 days could drop your credit score as much as 110 points. 

According to magnifymoney.com, 63% of homeowners have a mortgage with the average balance being over $145,000. About 40% of mortgages are set up by banks, but they have a more affordable option called recasting.

Recasting your mortgage calls for the bank to re-amortize the loan at the current interest rate which reduces the amount on your monthly payments. In order to qualify for recasting, you must have made some extra payments on the loan.

According to the website, bankrate.com, lenders might require for you to have paid off at least $5,000 to qualify.

For example, if you have to pay off $200,000 with the interest rate at 4% over 30 years and you have paid an extra $15,000 in principal, then you can recast the remaining balance over the rest of the time for the loan to reduce the amount paid per month.

JP Morgan Chase and Wells Fargo offer this option with no charge, while Bank of America charges an extra $250.

But not every loan qualifies. FHA and VA loans cannot be recast by anyone. 

Recasting is different from refinancing. Refinancing calls for borrowers to apply for a new loan and pay closing costs and appraisal, but if you qualify, you can get a lower interest rate and also save money.