VA Loan Recast

A loan recast, also known as a loan reamortization, is a process that allows loan borrowers to adjust their monthly mortgage payments by making a substantial lump-sum payment toward their mortgage principal. The lender then recalculates the loan’s amortization schedule without changing the interest rate or the original loan term.

Loan recasting is appealing for homeowners who have cash reserves and want to lower their monthly mortgage payments over the life of the loan.

The inability to recast a VA loan is one of the potential cons of the VA loan program compared to conventional loans.

Alternatives to Recasting a VA Loan

Here are three alternatives to mortgage recasting that can help VA borrowers achieve more affordable payments or pay off their VA loan faster.

1. Paying Down the Principal

One of the biggest advantages of the VA loan is that they do not have any prepayment penalties. This means you cannot be penalized for paying off your loan early.

Paying down the principal is likely the closest alternative to recasting a VA loan. While you won’t get a lower monthly payment, paying down the principal allows you to make large payments that can save you money over the life of the loan and potentially shorten your loan term.

2. Refinancing

Refinancing a VA loan can result in a lower interest rate, a reduced loan term, a lower monthly payment, or all three combined. You have to pay closing costs when you refinance, but that’s typically a minor cost compared to how much you’ll save in the long term.

Remember, if the interest rates are higher than when you received your initial loan, it may not make sense to refinance.

3. Loan Modification

Loan modification is a possible alternative to loan recasting, but it is typically only available for borrowers facing foreclosure or other financial hardship.

Loan modification can be a powerful foreclosure avoidance tactic that can help make your mortgage payments more affordable while keeping your home.

Reach out to your loan servicer to verify your eligibility for loan modification.

VA Loan Refinance vs. VA Loan Recast

Let’s take a closer look at how refinancing a VA loan differs from a VA loan recast:

Purpose: Refinancing involves getting a brand new mortgage loan with different loan terms while recasting focuses on adjusting the existing loan's amortization schedule to lower monthly payments while keeping the same interest rate and loan term.

Process: Depending on the type of refinance, you might need to go through a new mortgage application process, including a credit check and meeting the lender's eligibility requirements. Your ability to refinance may depend on your credit score, income, and other financial factors. Mortgage recasting is typically simpler and does not involve a mortgage application process.

Price: Refinancing also comes with closing costs, which can include fees for appraisals, title insurance, lender origination fees, and more. Recasting involves a smaller fee from the lender to process the recast, but it is generally much lower than the closing costs associated with a refinance.

While you currently cannot recast a VA loan, you have options. The full scope of what you can do with a VA loan will vary depending on your lender. However, you can speak to a VA loan expert to discuss your options at 855-870-8845.