Should You Do a Mortgage Refinance or Mortgage Recast?
Both a mortgage refinance and a recast can help homeowners lower their monthly payments or tap into the equity they’ve built in their home. But each option works a little differently and fits different goals.
According to the Mortgage Bankers Association (MBA), refinance applications increased 43% from 2024 to 2025, as mortgage interest rates started to decline from highs after the pandemic. That is why it is more important than ever to understand your options, so you can choose the option that best aligns with your financial goals as market conditions continue to shift.
In this guide, we’ll break down how refinancing and recasting work, when each option makes the most sense, and the key questions to ask so you can decide which strategy best supports your financial goals.
How Does a Mortgage Refinance Work?
One of the most common reasons homeowners choose to refinance is to secure a lower interest rate. While taking on a lower interest rate is a great option to help you save money, refinancing serves various goals and offers many different benefits.
Maybe you want to pay off your mortgage sooner, or you need cash from your home’s equity. Perhaps you want to get rid of your mortgage insurance. The reason for refinancing your home is unique for every individual.
Here are some reasons homeowners choose to refinance:
- Reduces your interest rate
- Lowers your monthly payments
- You can shorten your loan terms
- Stop paying monthly mortgage insurance
- Switch from an Adjustable-Rate Mortgage (ARM) to a Fixed-Rate Mortgage
- Can access home equity through a cash-out refinance
What Is a Cash Out Refinance?
A cash-out refinance allows a homeowner to take the equity they’ve built in their home and turn part of it into cash. As you pay down your mortgage or as your home value rises, you gain equity. A cash-out refinance replaces your current loan with a new, larger one, so you can receive the difference in cash.
Unlike a traditional refinance, which keeps the loan amount the same and is mainly used to lower payments or get a better interest rate, a cash-out refinance is specifically used to tap into your equity so you can use that money towards other large purchases.
Homeowners use the cash for many reasons, such as:
- Paying for home improvements to increase the home’s value
- Consolidating debt, like paying off credit cards or other loans
- Covering life’s major expenses, like education or other life events
How Does a Mortgage Recast Work?
A mortgage recast is when a homeowner makes a large lump sum payment toward the principal of their current loan. Then, the lender recalculates the monthly payments based on the new lower balance, while keeping the original interest rate and loan terms the same.
Why Homeowners Choose a Recast
Homeowners choose to recast their loan to lower their monthly payments without refinancing because the loan’s interest rate and term stay the exact same. There is no need to apply for a new loan or meet new credit or income requirements. It also costs significantly less than refinancing, as there are no major fees or closing costs.
Many homeowners use a recast after receiving a large lump sum, like money from selling another property, so they can apply that amount to their principal and enjoy lower payments moving forward.
Benefits of a Mortgage Recast:
- Lower monthly payments without refinancing
- No new loan or credit requirements
- Lower cost than refinancing
Pros and Cons: Mortgage Recast vs Mortgage Refinance
A mortgage recast and refinance both have many benefits, like how they can lower your monthly payment, but they work in different ways and suit different homeowners’ needs. We have outlined a quick side-by-side look at how the two options compare.
| Feature | Mortgage Refinance | Mortgage Recast |
|---|---|---|
| Payment Impact | Changes the entire loan structure and can give homeowners a lower interest rate, new loan terms, or even cash out from their equity. | Keeps the same loan, interest rate, and terms, but lowers the monthly payment by applying a larger lump sum payment to the principal. |
| Cost | Comes with closing costs because you are replacing your current mortgage with a brand new one. | Usually cheaper because it typically costs a small service fee to update the loan. |
| Time and Documentation Requirements | Requires another approval, including a review of your credit, income, assets, and sometimes a new appraisal. | Needs less documentation. |
| When Each Option Makes Sense | You want to lower your interest rate, change your loan terms, switch loan types, or access equity through a cash out. | You want to lower monthly payments without changing your rate or going through the refinancing process. |
Should You Recast or Refinance?
Start with your goals: What do you want to achieve?
Do you want to…
- Lower your monthly payments
- Access cash
- Pay off your loan sooner
- Reduce interest costs
- Remove mortgage insurance
- Ease financial stress
Questions to ask yourself:
- Are today’s interest rates better than when you first got your loan?
- How long do you plan to stay at your home?
- If you have a lump sum available to put toward the principal, do you want new loan terms?
- Do you need cash for renovations or major expenses? Will the savings outweigh the costs and help you break even in a reasonable time?
Examples of the Best Option for Common Situations
- Choose a recast when you have a lump sum and want lower payments without a new loan.
- Choose a refinance if rates have dropped, you want different loan terms, or you want to cash out.
- Choose a cash-out refinance if accessing equity is a priority.
- Choose a refinance if you want to remove mortgage insurance.
- Choose a recast when satisfied with your current rate and only want payment relief.
Frequently Asked Questions
What is the main difference between a refinance and a recast?
A refinance replaces your whole loan with a new mortgage. A recast keeps your existing loan but recalculates payments based on a lump sum.
Can I lower my interest rate with a recast?
No. A recast does not change your interest rate.
Does a refinance require a full credit review?
Yes. Refinancing involves a new mortgage application and full approval.
Do all lenders offer mortgage recasts?
No. Some loans cannot be recast based on investor or program rules. However, FHM offers mortgage recasts.
Is a cash-out refinance the same as a recast?
No. A cash-out refinance provides access to equity while replacing the loan. A recast only adjusts payments after a lump sum.
When is refinancing the right choice?
Depending on your financial situation, you can save more when current interest rates are lower than your previous rate.
When is recasting the right choice?
When you already like your interest rate and want lower payments after making a large principal payment.
How often can I refinance?
You can refinance your loan as many times as it makes sense for you to do so. However, it is important to remember the costs included.
Does a recast shorten my loan term?
Not automatically. Your term stays the same unless you continue paying extra on your own.
Understanding the key differences between refinancing and recasting can help you determine the best strategy that supports your long-term financial goals.
No matter the option you choose, an experienced mortgage professional will help you assess the right plan for you based on your goals and current financial situation.
Get started with a free consultation with one of our expert loan officers today.
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By refinancing an existing mortgage, the consumer’s total finance charges may be higher over the life of the loan. Contact your First Heritage Mortgage loan officer for more details.