Refinancing or Recasting: Which Is Better for Homeowners?

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Acquiring a housing property is one of the signs that you’re advancing in society. It also signals that you’re in the adulthood phase and are ready to take on more responsibilities. Paying your mortgage over time is commendable, but there comes a time when you want to find out how you could lower the payments. This is why homeowners should ask local experts about it. For example, if you’re from Kent, it will be better to ask mortgage advice in Kent from your local financing agencies to save time and effort. They know the local situation and can provide better guidance for the homeowner. 

 

As mortgage payments are recurring expenses, it’s best to find ways to decrease the payments, especially if the opportunity presents itself. Not only will the difference be a welcome addition to the budget, but it can also still become part of your retirement nest egg. Among the options are mortgage refinancing and recasting. Both of these options will reduce your mortgage payments and help save money on interest costs. However, there are benefits and disadvantages for both.

Let’s explore which between recasting and refinancing will be the better option for you. 

What’s refinancing?

Mortgage refinancing happens when the homeowner takes a new loan to pay off the existing housing loan. The loan is used to pay off the existing loan, and the homeowner makes payments to the new creditor. 

Hopefully, the homeowner will enjoy a lower mortgage payment because the principal amount is lower. In addition, it will also be much better if the interest on the new loan is lower than the previous one as it will drive the payments even lower. As such, it will lead to more savings and also lower insurance costs. 

Refinancing pros and cons

With refinancing, you receive a personalised deal. You can lower the monthly payment, and you can get a lower interest rate. You can restructure the loan based on your needs and capability to pay. However, taking out a different loan may cost you a lot more if there are many charges involved. Take into consideration if there are closing fees and other such fees related to your old loan. You’ll also have to undergo the same mortgage application process, which entails documentation.

What’s recasting?

In mortgage recasting or re-amortization, a homeowner pays off a significant portion of their existing housing loan. They then arrange for the lender to recast the remaining amount of their loan based on the lower principal balance. This means the payments will automatically be lower. They’ll still pay the loan to the same lender, but at a better price because they owe less. This will allow them to use the balance and put them to better use. 

Recasting pros and cons

Recasting your loan is a bit easier compared to refinancing. The documentation process isn’t that difficult because you don’t need to qualify for a new loan. You’re asking the lender to recompute the loan based on a better amortization schedule. The interest rates and the loan term are still the same, and the associated fees are also a bit lower than the refinancing fees. 

Which suits you better?

Homeowners must assess their situation before deciding to recast or refinance their mortgage. There are several factors to consider, which is why collaborating with mortgage experts will be one of the best options to look into. They’ll help you decide which will be more beneficial in the long run. 

Image: https://pixabay.com/photos/contract-consultation-office-408216/ 

 

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