If you have a large sum of cash, from a home sale, a bonus or an inheritance, and a mortgage you took out when rates were lower, you have a good problem. You can put the money toward the mortgage, but the way you do it changes what you get back. The two options people usually weigh are a recast and a refinance. In late 2026, with the 30-year average at 7.32% according to Freddie Mac’s weekly survey, the answer for most borrowers with an older loan is clear.
What a recast does
A recast, also called re-amortization, has three steps:
- You make a lump-sum payment toward principal.
- You pay the servicer a recast fee.
- The servicer recalculates your monthly payment over the same remaining term at the same rate.
The result is a lower required payment. Nothing else about the loan changes: no new application, usually no appraisal and no credit check.
What a refinance does
A refinance replaces your loan with a new one, with a new rate, a new term and closing costs that commonly run into the thousands. It makes sense when the new rate is meaningfully lower than the old one, or when you need to change the loan’s structure, for example to remove a co-borrower or drop mortgage insurance.
A worked example
You owe $320,000 at 6.5% with 25 years (300 payments) left. Your principal-and-interest payment is $2,160.66. You have $50,000 to put toward the loan, and your servicer charges a $250 recast fee.
| Option | New balance | Rate | Payment | Remaining interest |
|---|---|---|---|---|
| Do nothing | $320,000 | 6.5% | $2,160.66 | $328,199.94 |
| Recast after $50,000 lump sum | $270,000 | 6.5% | $1,823.06 | $276,917.58 |
| Lump sum, no recast (keep paying $2,160.66) | $270,000 | 6.5% | $2,160.66 | $181,855.61 |
| Refinance $270,000 into a new 30-year at 7.25% | $270,000 | 7.25% | $1,841.88 | $393,071.27 |
Three lessons stand out:
- The recast lowers your payment by $337.60 a month for a $250 fee and keeps the 6.5% rate.
- The refinance is worse on every line. The payment ends up higher than the recast, the rate is higher, the clock restarts at 30 years and you pay closing costs on top.
- Skipping the recast saves the most interest. If you make the same lump-sum payment but keep paying the old $2,160.66, the loan ends in 210 months instead of 300, and remaining interest falls to about $181,856. A recast trades that extra savings for monthly breathing room.
So the real decision is not recast vs. refinance. It is lower payment (recast) vs. faster payoff (prepay and keep the payment). You can test both in the loan amortization calculator by entering the new balance and either the recast payment or an extra monthly amount.
When a recast makes sense
- Your current rate is below today’s market rates, so refinancing would raise it.
- You want a lower required payment for flexibility, such as after buying a new home before selling the old one, or ahead of a planned income drop.
- You have a conventional loan and a servicer that offers recasts.
- You do not need cash back out of the house.
When a refinance still wins
- Rates have fallen well below your current rate, and you plan to stay long enough to recover closing costs.
- You have an FHA loan and can refinance into a conventional loan to drop mortgage insurance.
- You need to change the loan, such as switching from an adjustable rate to a fixed rate or removing a borrower after a divorce.
A quick test: divide the refinance closing costs by the monthly savings. If it takes 40 months to break even and you might move in three years, the refinance does not pay.
How to request a recast
- Ask your servicer whether your loan is eligible, what the fee is and the minimum lump sum. Some servicers require several months of on-time payments first.
- Make the principal payment exactly as instructed so it is applied to principal, not held as a future payment.
- Submit the recast request and pay the fee. Processing usually takes one to two billing cycles.
- Check the new payment on your next statement and confirm that escrow for taxes and insurance did not change separately.
Should the money go to the mortgage at all?
A lump sum applied to a 6.5% mortgage earns a guaranteed 6.5% return in avoided interest. Before you send it, make sure you have an emergency fund, no higher-rate debt such as credit cards (which you can model in the credit card payoff calculator), and that you are capturing any employer retirement match. Home equity is also harder to get back out than cash: once it is in the house, accessing it means a new loan or a sale.