Mortgage Recast Savings Calculator

An introduction to mortgage recasting and re-amortisation

A mortgage recast — servicers and the agency guides call it a re-amortisation — is a servicing transaction, not a new loan. You send the servicer a large one-time principal payment, formally a principal curtailment, and the servicer then recalculates the contractual principal-and-interest instalment on the reduced balance. Fannie Mae's Servicing Guide is unusually explicit about the mechanics: after a substantial principal curtailment the servicer may “agree to reduce the P&I payment only (based on a re-amortization of the current UPB and using the current interest rate and remaining loan term).”

Read that sentence closely, because it contains the single most misunderstood fact about recasting. Three things stay fixed: the note rate, the remaining number of scheduled payments, and therefore the maturity date. Only the payment moves, and it moves down. A recast does not shorten your loan. If a calculator tells you that recasting pays your mortgage off early, it is silently modelling prepayment instead, which is a different strategy with a different cash-flow profile. This page keeps the two strictly separate and prices them side by side.

The practical appeal is straightforward. If you hold a note rate from an earlier rate environment, refinancing to release cash flow would mean surrendering that rate, paying closing costs, and restarting the amortisation clock. A recast leaves the note untouched. Fannie Mae even instructs servicers not to treat a re-amortisation as a modification when assessing eligibility for a later loss-mitigation modification, so it does not consume that option. The trade-off is that a recast converts liquid cash into home equity, which is about the least liquid asset a household owns.

This calculator therefore does three jobs. It re-amortises your balance correctly over the unchanged remaining term. It reports how much interest that removes from the rest of the loan. And it places the recast next to the two strategies people actually weigh it against — refinancing, and simply prepaying while continuing to pay the old instalment — on a present-value basis, holding the lump sum constant so the comparison is fair.

How to use this recast calculator with your mortgage statement

Every dollar figure here refers to principal and interest only. Mortgage statements usually show a combined payment that also carries escrowed property taxes, hazard insurance, mortgage insurance and sometimes an HOA assessment. Escrow is untouched by a recast, so mixing it in will distort every output. Your statement's amortisation or transaction detail will separate the P&I component.

Current principal balance is the unpaid principal balance (UPB) shown on your most recent statement, before the lump sum. Annual interest rate is the note rate, entered as a percentage: type 6.25, not 0.0625. Remaining term is the number of scheduled monthly payments left, not the original term — a 30-year loan taken out three years ago has 324 months remaining. Lump-sum principal payment is the curtailment you intend to send; it must be smaller than the balance. Recast fee is the servicer's administrative charge; leave it at zero if your servicer does not charge one.

The current monthly P&I payment field is optional and is used only as a cross-check. The calculator derives your contractual payment from the balance, rate and remaining term, because that is exactly what the servicer's own amortisation schedule does. If the figure you type differs from the derived one by more than a dollar, you get a warning rather than a silently wrong answer — the usual causes are an escrow-inclusive payment, a stale balance, or a remaining term counted in years instead of months.

The refinance block is optional. Fill in a realistic quoted rate, the new term you would be offered, and total closing costs, and the comparison table adds a refinance row plus a break-even month against those costs. The discount rate drives the present-value column and is the one genuinely subjective input; the section on reading the results explains how to choose it.

The re-amortisation formula behind a recast payment

A level-payment fixed-rate mortgage is an ordinary annuity. Setting the present value of the remaining payments equal to the outstanding balance and solving for the payment gives the standard closed form, where is the balance being amortised, the periodic (monthly) interest rate and the number of remaining payments:

Formula: M = (P ⋅ i ⋅ (1+i)^n) / ((1+i)^n − 1)

The periodic rate is the nominal annual rate divided by twelve, which is the convention for a US monthly-pay mortgage:

Formula: i = a / 1200 so 6.25% gives i = 0.00520833

The recast simply applies that same expression twice. Before the curtailment the servicer is amortising the full balance over the remaining payments; afterwards it amortises over the same payments at the same . Because the payment is linear in the balance, the reduction has a pleasantly simple closed form:

Formula: Δ M = (L ⋅ i ⋅ (1+i)^n) / ((1+i)^n − 1)

In words: every dollar of curtailment buys the same payment reduction regardless of the size of the loan, and that per-dollar reduction depends only on the rate and the remaining term. Remaining interest under either schedule is total scheduled payments minus the principal repaid, so the interest the curtailment removes over the rest of the loan is:

Formula: I_saved = (M ⋅ n − P) − (M_new ⋅ n − (P − L)) = Δ M ⋅ n − L

The only genuinely recoverable cash cost of a recast is the servicer's administrative fee, so the fee-recovery period is the fee divided by the monthly saving. Note carefully what is not in the numerator:

Formula: t_fee = F / (Δ M)

Many recast calculators put the lump sum in that numerator and call the result a break-even. That is a double count. The curtailment is not consumed: it extinguishes principal you owed anyway and shows up immediately as home equity. Charging it against the payment saving asks the same dollar to be repaid twice. Where the lump sum genuinely belongs is in a present-value comparison against the alternatives, which is what the strategy table below does.

Finally, the prepayment strategy needs the inverse of the annuity formula. Holding the payment at the original while the balance drops to retires the loan in:

Formula: n_prepay = − (ln ⁡ (1 − (i ⋅(P − L)) / M)) / (ln ⁡(1 + i))

The calculator does not stop at that closed form: it runs the actual month-by-month schedule so that the final, partial instalment is handled correctly rather than being smeared across a fractional month.

Recast, refinance or prepay: a strategy comparison table

Holding the lump sum constant, a homeowner with cash in hand has four realistic moves. The table sets out what each one does to the note, the payment and the maturity date; the calculator above prices all four with your own numbers.

The row that surprises people is the third. Prepaying without recasting removes far more interest than recasting does, because you keep directing the full original payment at a shrinking balance. Recasting deliberately gives that advantage back in exchange for lower required outflow. Neither is “better”; they optimise different things, and a household with unstable income may rationally prefer the lower obligation even at a higher lifetime interest cost. Note too that you can recast and then voluntarily keep paying the old amount — that gives you the prepayment economics with a lower floor if a bad month arrives.

A worked example on a $412,000 balance

Take a loan with a $412,000 unpaid balance at 6.25% with 324 payments (27 years) remaining, a $60,000 curtailment and a $250 servicer fee. The monthly rate is 0.0625 ÷ 12 = 0.00520833. Amortising $412,000 over 324 months gives a contractual payment of $2,635.49. Amortising the post-curtailment balance of $352,000 over the same 324 months gives $2,251.68, a reduction of $383.81 a month.

Remaining interest falls from $441,898.62 to $377,544.45, so the curtailment removes $64,354.17 of interest — slightly more than the $60,000 it cost, which is what you would expect at a rate above zero over a long horizon. The $250 fee is recovered in the first month, since one month of saving is $383.81. There is no meaningful fee break-even to worry about here.

Now the alternatives. Send the same $60,000 but keep paying $2,635.49: the loan retires in 229 months instead of 324, 95 months early, with total remaining interest of just $251,480.44. That is $126,064 less interest than the recast, purchased entirely with the payment flexibility you gave up. Refinance the $352,000 instead at 5.50% over a fresh 324 months with $6,000 of closing costs: the payment drops further, to $2,087.84, and remaining interest is $324,460.64. The refinance saves $163.84 a month against the recast, so it recovers its $6,000 of closing costs in 37 months.

Discount every one of those streams at 4% nominal, monthly, and add the upfront cash: doing nothing costs $521,664 in today's dollars, recasting $505,944, refinancing $479,264 and prepaying-while-still-paying $481,628. At that discount rate the refinance wins narrowly on present value, prepayment is a close second, and the recast trails both — but the recast is the only option that lowers the required payment without a new note. Raise the discount rate to 6.5% and doing nothing starts to win outright, because you are then assumed to earn more on the cash than the mortgage costs.

Reading the results and the time-value assumption

Take the outputs in order. The new payment and the monthly saving are contractual facts once the servicer completes the re-amortisation, and they are the numbers to take into a household budget. The interest saved is a lifetime figure, not an annual one, and it is stated in nominal dollars — undiscounted, so it always looks larger than its economic value.

The present-value column is the honest comparison, and it rests on one assumption you control: the discount rate. It represents what a dollar in your hands is worth to you, which in practice is the after-tax, after-fee return you could reliably earn on the lump sum instead of burying it in the house. If you would park the money in Treasuries or an insured deposit, use that yield net of tax. If you would clear credit-card debt, that debt's rate is your discount rate and it will dominate everything on this page. The default of 4% is deliberately conservative and is an assumption, not a forecast.

The logic is unavoidable: prepaying a mortgage earns a risk-free, tax-free return exactly equal to the note rate. So when your discount rate exceeds the note rate, keeping the cash wins on present value; when it is below the note rate, putting the cash into the mortgage wins. The strategy table makes that crossover visible instead of leaving it implicit. Change the discount rate and recalculate to find your own crossover point.

Two cautions on the present-value ranking. First, it treats a household as indifferent between a dollar of required payment and a dollar of optional payment, which real households are not — a lower required payment is insurance against job loss and has value the model does not price. Second, it ignores taxes on both sides: mortgage interest may be deductible if you itemise, and investment returns are usually taxed. Use the ranking to size the differences, not to make the decision on its own.

Eligibility limitations, assumptions and what this model ignores

The largest limitation is not mathematical, it is contractual: nothing obliges a servicer to recast. Fannie Mae's Servicing Guide says a servicer may agree to re-amortise after a substantial curtailment; it does not define “substantial”, set a fee, or create a borrower right. In practice servicers set their own minimum curtailment (often a fixed dollar floor or a percentage of the balance), their own fee, and often a limit on how many times a loan may be recast. Fannie Mae does require the servicer to complete Form 181, the Agreement for Modification, Re-Amortization, or Extension of a Mortgage, so a recast is a documented transaction rather than an informal courtesy.

Loan type matters a great deal. Conventional loans held in portfolio or backing an MBS pool are the ordinary case; Fannie Mae's guidance covers a current portfolio loan or a current first-lien loan in an MBS pool. Government-backed programmes work differently. An FHA borrower has an absolute right to prepay in whole or in part with no charge under 24 CFR 203.22(b), but changing the amortisation requires a formal mortgage modification under 24 CFR 203.616, executed and reported to HUD — not the light-touch servicing transaction described here. VA loans must be amortised in approximately equal periodic instalments under 38 CFR 36.4310(a), and USDA guaranteed loans must be fixed-rate and monthly-amortised under 7 CFR 3555.104, neither of which provides for borrower-requested re-amortisation. Treat FHA, VA and USDA loans as ineligible until your servicer says otherwise in writing. Adjustable-rate loans recast on their own schedule at each rate reset, so a voluntary recast interacts with that in ways this model does not capture.

The model's own assumptions are these. A fixed rate held constant for the whole remaining term. Level monthly payments in arrears with no rounding to the cent by the servicer. The curtailment applied cleanly at month zero with no accrued-interest timing effects — in reality the day the servicer posts the payment within the cycle shifts the result by a few dollars. Escrow, mortgage insurance, HOA dues, late fees and partial-month interest are all excluded. Property-value change and the option value of holding cash are excluded. Income taxes are excluded on both the interest and the investment side. The refinance comparison uses only the closing costs you enter and does not compute a Regulation Z annual percentage rate; a lender's APR under 12 CFR 1026.22 embeds prepaid finance charges as defined in 12 CFR 1026.4, so the APR on a Loan Estimate will normally exceed the note rate you type here.

Use this as a decision-support estimate to size the options and frame the conversation. Before committing cash, ask your servicer four questions in writing: are you eligible to recast at all, what is the minimum curtailment, what is the fee, and what will the new payment and effective date be. Their amortisation schedule, not this page, governs.

Sources behind the recast rules and formulas

Servicing mechanics: Fannie Mae Single-Family Servicing Guide, F-1-09, Processing Mortgage Loan Payments and Payoffs (quoted above on re-amortisation of the current UPB at the current rate and remaining term) and C-1.2-01, Processing Additional Principal Payments (Form 181; a re-amortisation is not a modification). Curtailment handling by the other agency investor is covered in the Freddie Mac Single-Family Seller/Servicer Guide, Section 8103.3. Consumer framing of amortisation and fixed payments: Consumer Financial Protection Bureau, “How does paying down a mortgage work?”. Refinance cost definitions: Regulation Z, 12 CFR 1026.4 (finance charge) and 12 CFR 1026.22 with Appendix J (annual percentage rate, actuarial method). Government-programme rules: 24 CFR 203.22(b) and 24 CFR 203.616 (FHA), 38 CFR 36.4310 (VA), 7 CFR 3555.104 (USDA), all published at govinfo.gov, Code of Federal Regulations. Fee amounts are set by individual servicers and are not published by Fannie Mae or Freddie Mac, so no fee figure on this page should be treated as an agency standard.