One lump sum, two very different promises
Both moves start identically: your lump sum goes to principal. The fork is what the loan does next. In a recast, the servicer recomputes your payment so the smaller balance amortizes over exactly the months you already had left — the payment falls, the final payment date does not move, and your interest rate stays untouched, which matters if you locked a rate below today's market. In a prepayment, nothing is recomputed: you keep sending the old payment, so each month overshoots what the smaller balance requires, principal melts faster, and the loan simply ends early. Because prepaying keeps more money working against the balance every month, it always saves more total interest than recasting the same lump sum. Recasting is the only one of the two that helps your monthly budget — and the only one that usually costs a fee.
The formulas
PMTrecast = (B − L) · i ÷ [1 − (1 + i)⁻ᵐ]
n = −ln(1 − (B − L) · i ÷ PMT) ÷ ln(1 + i)
where B is the current balance, L the lump sum,i the monthly rate (annual rate ÷ 12), m the months remaining, and PMT the old payment. The first line is the recast: the standard amortization payment on the reduced balance over the same remaining term. The second solves the prepay path — how many old-size payments the reduced balance still needs. Since n lands between whole months, this calculator amortizes month by month so the final partial payment is exact.
Worked example
Take the default case: a $350,000 balance at 6% with 25 yrs to go, a $50,000 windfall, and a $250 recast fee. Here are the three paths:
| Step | Amount |
|---|---|
| The loan today$350,000 balance at 6% with 25 yrs left — plus a $50,000 lump sum to deploy | $350,000 |
| Path 1 — do nothingkeep paying $2,255.05 for 25 yrs; total interest $326,516 | $2,255.05 |
| Path 2 — recastre-amortize $300,000 over the same 25 yrs for a $250 fee; interest falls to $279,871 | $1,932.90 |
| Path 3 — extra principalkeep the $2,255.05 payment; paid off in 18 yrs 4 mos — 6 yrs 8 mos early — with $194,703 interest | 18 yrs 4 mos |
| = Recast frees $322.15 a month; prepaying saves $85,169 more interestrecast saves $46,645 of interest, prepaying saves $131,814 — cash flow vs. total cost | $322.15 |
Computed with this calculator's default settings — open the tool above and you'll see the same numbers, then swap in your own loan.
Recast for cash flow, prepay for total cost
The table above is the whole decision in miniature. Recasting turns the lump sum into $322.15 of monthly breathing room — useful if income just dropped, a rate-shopped refinance is off the table, or you would rather redirect the difference to higher-yield savings or investments. Prepaying turns the same lump sum into 6 yrs 8 mos of payments that never happen, which is why its interest savings run$85,169 ahead of the recast's. Note what recasting is not: it is not a refinance, so there is no new rate, no closing costs, and no restarted term — just a processing fee, and typically a minimum lump sum set by the servicer. Not every loan offers the option. It is generally a conventional-loan feature — Fannie Mae's servicing guide, for instance, addresses re-amortizing a loan after a large principal curtailment — while government-backed loans such as FHA, VA, and USDA typically cannot be recast. Ask your servicer what your note allows before counting on either path.
To see the rest of the picture, start with themortgage calculatorfor your full payment and amortization baseline, weigh a new rate against keeping your current one with therefinance calculator, or compare a steady drip of extra principal with thebiweekly mortgage calculator.
Frequently asked questions
What is a mortgage recast?
A recast (or re-amortization) is when your servicer takes a lump-sum principal payment, then recalculates your monthly payment on the smaller balance over the months already left on your loan. Your interest rate, payoff date, and loan itself do not change — only the payment drops, because the same remaining term now has to retire less principal. There is no new application, appraisal, or closing; most servicers charge a modest processing fee and require a minimum principal reduction. It is the cash-flow move: the windfall becomes a permanently lighter payment rather than an earlier payoff.
What is the difference between a recast and a refinance?
A refinance replaces your mortgage with a brand-new loan — new rate, new term, closing costs that often run into thousands of dollars, and a fresh round of underwriting. A recast keeps your existing loan and rate, and just re-computes the payment on a smaller balance for a small fee. If today's rates are higher than the rate you locked in, refinancing to lower your payment would mean trading a cheap loan for an expensive one; recasting lowers the payment while keeping the rate you like. Refinancing makes more sense when rates have fallen well below what you pay now.
Is it better to recast or just make an extra principal payment?
The same lump sum goes to principal either way — what differs is what you get back. Recast, and your required payment drops while the payoff date stays put. Prepay and keep the old payment, and every month you are overpaying the new, smaller balance, so the loan ends years early and the total interest saved is much larger. Prepaying always wins on lifetime cost; recasting wins on monthly breathing room. A middle path: recast for the lower required payment, then voluntarily keep paying the old amount — you keep the flexibility and most of the interest savings.
Which loans can be recast?
Recasting is generally a feature of conventional loans, and even there it is at the servicer's discretion — Fannie Mae's servicing guide, for example, describes how servicers may re-amortize an eligible loan after a substantial principal curtailment. Government-backed loans — FHA, VA, and USDA — typically cannot be recast, and some jumbo or investor loans exclude it as well. Servicers also commonly set a minimum lump sum, often several thousand dollars or a percentage of the balance. The only way to know your loan's rules is to ask your servicer directly, ideally in writing.
How much does recasting cost?
Far less than a refinance. Servicers that offer recasting typically charge a one-time processing fee — commonly a few hundred dollars — and require a minimum principal reduction to qualify. There is no appraisal, no title work, no points, and no credit check, which is why the all-in cost is a rounding error next to refinance closing costs. Weigh the fee against the monthly saving: in this calculator's default example the fee is recovered in the first month of the lower payment. Confirm the exact fee and minimum with your servicer, since both vary.
Sources
The official figures this page quotes are drawn from the primary sources above — check them (or a qualified professional) before relying on a result.
Disclaimer: This calculator is foreducation and illustration only. It models principal and interest on a fixed-rate loan — not taxes, insurance, PMI, or escrow changes — and assumes the lump sum posts to principal immediately and every payment arrives on time. Whether your loan can be recast, the fee, and any minimum lump sum are set by your servicer and your note; confirm them in writing. Nothing here is financial, lending, or tax advice.