Cutting a mortgage loan down
Large numbers of hardworking and respectable Americans have recently found that they no longer qualify for mortgage refinancing. Lending criteria have been ratcheted up to a point where well-resourced and fundamentally creditworthy individuals are being turned down just because of some minor and increasingly distant slippage in credit score. Indeed, many find their applications marked "Not Approved" solely because they're self-employed.
If you find yourself in this position, but want to reduce your monthly mortgage payments or cut the length of your loan, you should check your loan agreement. Because, as The New York Times revealed on December 30, some of the best mortgage lenders allow borrowers to go through a process called "recasting" or "re-amortizing".
It's important to note that use of the phrase, "some of the best mortgage lenders", because not all loan servicers permit the process. Homeowners who are interested should check with their mortgage lenders.
Mortgage loan re-amortization--what is it?
Mortgage loan re-amortization can be attractive to those who cannot--or do not wish to--refinance. As The San Francisco Chronicle highlights, refinancing involves repaying and replacing the old loan, while a re-amortization requires a retaining but rejigging it. And that, of course, means no credit check, no property appraisal and no closing costs--although there is likely to be a fairly modest fee, about $150.
What generally happens is that the borrower has a lump sum (there's usually a minimum, sometimes $5,000), and uses that to reduce the outstanding principal debt on the mortgage. Of course, pretty much anyone can do that at any time, but with re-amortization, the loan is restructured. The rate, the term and other conditions remain the same, but the monthly payments are reduced to reflect the fact that less money remains to be repaid over the same period.
This contrasts with paying down a mortgage with a lump sum without re-amortizing. If you do that, your monthly payments would normally remain the same, but you'd pay off the loan faster.
What's the point?
Mortgage loan re-amortization certainly doesn't suit everyone. To start with, for many, the whole point of using a lump sum to pay down their home loan is to be mortgage-free as soon as possible. And re-amortization won't in itself reduce the term by a single day. But you might find the process helpful if, say:
- You can't refinance, but you're worried about your ability in the future to make payments, especially if you have an adjustable-rate mortgage that could rise in coming years
- You want the flexibility that would come with a lower monthly payment--including the option of overpaying, and thus shortening the term of the loan
- You have an investment property that isn't currently producing the return you need to cover your mortgage payments, and your concern is one of cash flow
If you'd like to see what re-amortization would do to your home loan, why not use the ShopRate mortgage calculator? Remember to put in your existing rate and the length of time your current mortgage still has to run. But do two calculations: one with your current outstanding balance, and another with the balance that would be outstanding if you were to pay in a lump sum and re-amortize. You should be able to see approximations of both your new monthly payment, and the total amount of interest you could save.
Mortgage quotes for all purposes
If re-amortization isn't for you, but you're looking for a new mortgage or to refinance, a good place to start is right here. Check out competitive mortgage quotes today.