For many households, housing is the single largest expense, whether it’s rent or a mortgage. In today’s environment, those costs only rise due to climbing interest rates and inflated home prices. Locking yourself into a 30-year mortgage can feel daunting, especially when those monthly payments include additional costs like property taxes, insurance, and maintenance. These often increase over time.

But here’s the good news: you may have more flexibility than you think. There are strategies available to help reduce the burden of your mortgage. Many people either don’t know about them or don’t fully understand how they work. Even if you’re familiar with one strategy, it might not fit your situation best.

Today, we’re exploring three options homeowners have when managing their property, but more specifically, tackling their mortgage. Let's get into it:

What Happens If You Overpay a Loan?

Most people are under the assumption that the best way to tackle debt is by overpaying it. And to be fair, this is a valid point. If you do this with consumer debt, you'll typically be able to reduce your debts at ease. Mortgages, on the other hand, work a little differently.

If you were to make an overpayment on the mortgage, this would go directly to the principal. What gets confused is what this results in. Most believe this would directly lower the amount due. However, what gets reduced instead is the term to which the loan is paid off. It may shed off a couple of months or years, but the monthly amount remains the same.

So while the balance payoff term is reduced, the monthly amount due is not. This can be tricky if cash flow is tight and there is a high need for it in the near term. Luckily, there are more options to consider.

What Is Refinancing?

Refinancing is when you replace your existing mortgage with a brand-new loan. That new loan may come with different terms, most notably a new interest rate and loan duration. This process resets your loan and creates an entirely new contract.

Why would banks offer this? Because it’s profitable for them. When loans are extended or restarted, lenders are compensated for issuing new loans and continue to earn interest over time. This makes refinancing an attractive business model.

The main appeal of refinancing is the potential to lower your interest rate. If rates drop well below your current rate, refinancing could offer significant savings. But be careful—it’s not free. Refinancing typically comes with closing costs and fees.

While a common rule of thumb is that refinancing makes sense if your new rate is at least 1% lower, the true breakeven point depends on your loan size, closing costs, and how long you plan to stay in the home.

Here’s what happens when you refinance:

• You get a brand-new mortgage
• Your interest rate is updated to the current market rate
• Your new loan balance typically matches your old payoff amount, unless you roll in closing costs or take cash out
• Your monthly payment is adjusted based on your new term and interest rate

Refinancing makes sense in a low-interest-rate environment. However, there is an alternative that can help despite the low interest rates.

What Is Recasting?

Recasting doesn’t give you a new loan. Instead, it allows you to take a lump sum of cash, apply it towards your principal, AND reamortizes the loan. So the loan's term and interest rate remain the same, but the monthly payment is lowered since there is less principal due and less interest to accue from it.

This strategy is ideal if you’ve come into a large sum of money, such as a bonus, inheritance, or proceeds from selling another asset and need to reduce the floor of your ongoing expenses. Recasting lets you reduce your monthly burden without restarting your mortgage.

Here’s why that matters. If you make a large extra payment toward your mortgage without recasting, your loan duration may shorten, but your monthly payment typically stays the same. Recasting allows the lender to reamortize your loan based on the new, lower balance. That means you’ll see immediate monthly savings.

Keep in mind:

• Recasting usually requires a minimum lump sum
• Some lenders charge a small fee to process the recast, though they may waive this fee
• Not all mortgages or lenders allow recasting, so check your lender’s policy
• Once you make the payment, that money is tied up in home equity. Make sure your emergency fund and other near term financial needs are covered first

If you want to reduce your monthly payment and have the cash on hand, recasting can be a very effective option.

The Bottom Line

Mortgages aren’t set in stone. Selling your home is one option, but it’s not the only way to improve your housing situation. Refinancing can be a smart move when interest rates drop. Recasting can be ideal when you have a lump sum of cash ready to reduce your loan balance.

With the right strategy and knowledge, you can make your mortgage work better for you and keep your dream home comfortably within reach.

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