Wells Fargo Reports Rising Interest in Mortgage Recasts

According to Wells Fargo spokesperson Tom Goyda, interest rate increases and the impact of the Tax Cuts and Jobs Act on the use of the mortgage interest deduction has led more of its customers to express interest in mortgage recasts.

These occur when a borrower makes an additional principal payment on their loan, then ask the bank to re-amortize the loan at the existing interest rate. The loan terms remain the same, but monthly payments are lower, according to The Wall Street Journal’s Katy McLaughlin.

In some ways, recasting is the flip-side of the better-known strategy of making additional principal payments, which reduces the length of the loan term but keeps monthly payments the same. But the two maneuvers can co-exist: People who either make a single lump payment or have made a number of extra payments over the years—such as borrowers who make bi-weekly rather than monthly mortgage payments—can ask their lenders later on to recast the mortgage.

Making extra or excess mortgage payments will shorten the term of the loan, thus saving a homeowner thousands of dollars in interest. Paying down principal plus recasting also saves on interest over the life of the loan, but not as much as simple prepayment, because the loan term remains the same.