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Thursday, January 13, 2011

A Little-Known Strategy for Cutting Mortgage Payments - Mortgages - NYTimes.com

A Little-Known Strategy for Cutting Mortgage Payments - Mortgages - NYTimes.com

HOMEOWNERS looking to lower their monthlymortgage payments and also save some on interest may be able to do so without all the hefty fees and daunting credit requirements of refinancing.

A little-known strategy, called “recasting,” or “re-amortization,” is available through some mortgage lenders and servicers.

It involves paying off a lump sum of the principal amount and asking to have the monthly payments reset according to the original interest rate and loan terms. The lump sum reduces the principal, so your new monthly payments decrease slightly and you save on interest paid over the life of the loan.

Lenders typically charge an administrative fee of $150 or more for this service, though borrowers are not required to pay closing costs or submit to another credit check, because they are not asking for a new loan.

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Here’s how it might work. Let’s say that as of late December, you had just over $230,449 of principal left on a 30-year fixed-rate loan for $300,000 taken out at 7.93 percent in 1995. You have been paying just under $2,187 a month in principal and interest. But if you put in $20,000 toward that remaining principal and asked your lender to reamortize your payments over the remaining 15 years on the loan, your monthly payment would drop by $184, to around $2,002. Putting in $100,000 would save $945 a month and bring payments to $1,241.