Mortgage Recast Calculator

Understanding the mortgage recast calculator — concept and principle

A mortgage recast (re-amortization) lets you make a large lump-sum payment and have the lender recalculate your monthly payment over the remaining term, at the same interest rate. The end date stays the same, so the payment drops. This calculator shows your balance before and after the lump sum, the new payment, the monthly saving and the interest saved after the recast fee.

How it is calculated

With i = annual rate ÷ 12 and N = years × 12:

• Original payment A = P × i ÷ (1 − (1 + i)^−N).
• Balance after k payments: B = P(1 + i)^k − A × ((1 + i)^k − 1) ÷ i.
• Balance after lump sum L: B₂ = B − L.
• New payment A₂ = B₂ × i ÷ (1 − (1 + i)^−(N − k)).
• Interest saved = [A(N − k) − B] − [A₂(N − k) − B₂] − recast fee.

The principle

Interest is charged on the outstanding balance, so cutting the balance cuts every future interest charge. A recast spreads the smaller balance over the same remaining months, which lowers the required payment. Prepaying without a recast keeps the old payment, so more of each payment goes to principal and the loan ends earlier; that saves even more interest, but it gives no monthly cash-flow relief. A recast is a choice of flexibility over maximum savings.

Worked example

Default inputs: $300,000 at 6% for 30 years, 60 payments made, $50,000 lump sum, $250 fee.

1. Original payment: $1,798.65.
2. Balance after 60 payments: $279,163.07.
3. After the lump sum: $229,163.07.
4. New payment over 300 months: $1,476.50; monthly saving $322.15.
5. Remaining interest: before $260,432.40, after $213,787.19.
6. Interest saved: 260,432.40 − 213,787.19 − 250 = $46,395.21.

How to read the result

The monthly saving shows how much cash flow the recast frees. Compare it with keeping the old payment: if you can afford the original payment, prepaying alone usually saves more interest. Recasts suit people who receive a windfall, such as a home sale before buying, and want a lower fixed payment without refinancing.

Common mistakes

• Assuming every loan allows recasts (many government-backed loans do not).
• Expecting a lower rate; a recast keeps the existing rate.
• Ignoring the lender's minimum lump-sum requirement.
• Draining emergency savings to make the lump sum.

Frequently asked questions

Recast or refinance?

A recast keeps your rate for a small fee; refinancing changes the rate and has closing costs.

Does a recast shorten my loan?

No. The end date stays the same; only the payment falls.

Can I recast more than once?

Some lenders allow it; check your servicer's policy.

Sources: Brealey, Myers and Allen, Principles of Corporate Finance (annuity formulas)