Mortgage recast vs extra payments

[Anonymous]

Yes that correct, the vast majority of people with a mortgage have a very low rate.

Consider this the fed’s gift to you. It’s an enduring economic stimulus to those who locked in (until life dictates one move).






Below 6%: 91.8% of U.S. mortgaged homeowners have a rate below 6%, down from a record high of 92.9% in the second quarter of 2022.

Below 5%: 82.4% have a rate below 5%. That’s down from a peak of 85.7% in the first quarter of 2022.

Below 4%: 62% have a rate below 4%, also down from a record high (65.3%) hit in the first quarter of 2022.

Below 3%: 23.5% an interest rate below 3%, near the highest share on record. The highest was 24.6% in the first quarter of 2022.

[Anonymous]

Some commenters can’t seem to understand that most people cannot continue to afford their mortgage payments once they retire. Now that rates are so high they also likely can’t afford to move. Best option to maintain lifestyle - not grow wealth that’s not what this is about - is to recast while still earning so that they can lower the monthly to a manageable amount for retirement years.

[Anonymous]

You are correct, I cannot understand why investing in an illiquid thing that returns less than risk free alternatives helps one afford anything*


Can you provide an example?

[Anonymous]

Anonymous wrote:Some commenters can’t seem to understand that most people cannot continue to afford their mortgage payments once they retire. Now that rates are so high they also likely can’t afford to move. Best option to maintain lifestyle - not grow wealth that’s not what this is about - is to recast while still earning so that they can lower the monthly to a manageable amount for retirement years.

This describes us. We have equity in a second home (that has been appreciating). My current plan is to sell that house when we retire, take the $500K in after-closing-cost equity, and pay down our house mortgage here. That's because that $500K would yield only (on a 4% draw) $20K annually. And $20K a year isn't enough to help us with our monthly expenses. By paying down the mortgage, we will feel more able to live within our retirement income.

[Anonymous]

Anonymous wrote:By “recast”, I’m referring to a lump sum payment that pays down principal but keeps term same so you have a lower payment but same term.

As defined here:


https://www.rocketmortgage.com/learn/recast-mortgage

A mortgage recast is when you make a lump-sum payment toward the principal balance of your loan. Your lender will then reamortize your mortgage with the new (lower) balance. Your interest rate and term remain the same, but you can lower your monthly payments because your principal went down.
Most commonly, homeowners recast a mortgage when they’ve purchased a new home but haven’t sold their old one. Once the previous property has been sold, then the homeowner can use the proceeds of the sale toward a recast of their new mortgage.
A recast is also an option for those who receive a large amount of money and desire to lower their mortgage expenses. For example, a homeowner receives an inheritance or a large bonus from work.

I was going with Jack Guttentag's definition here which does not tie the down/prepayment to the transaction of recasting:
https://www.mtgprofessor.com/A%20-%20Amortization/voluntary_mortgage_recasts.html

I have found him in the past a very reliable source.

[Anonymous]

Anonymous wrote:Some commenters can’t seem to understand that most people cannot continue to afford their mortgage payments once they retire. Now that rates are so high they also likely can’t afford to move. Best option to maintain lifestyle - not grow wealth that’s not what this is about - is to recast while still earning so that they can lower the monthly to a manageable amount for retirement years.

If you still have a mortgage, you don’t have any business retiring yet.

[Anonymous]

Why? I’d feel FAR more comfortable just having liquid assets to service the mortgage. It’s just like any other expense. My $730k mortgage has $21k/year of interest.

Why would I magically become more ready for retirement if this (which is like 1/10 of total spend) goes away?

[Anonymous]

In fact, it’s a very nice expense in that it’s tax deductible, predictable, and declines in real value over time.

I love my mortgage; have a strong emotional attachment to it. Im buying 30-40% LTV loans and bonds at 5-6%+, treasuries at 4-5%+ and equities at (a riskier “more”), have liquidity, convexity*, greater total return and lower risk on my side.


my only regret is not taking cash out in 2021, should have paid a higher rate to get a few hundred grand more of this amazing and beautiful liability.

[Anonymous]

Anonymous wrote:In fact, it’s a very nice expense in that it’s tax deductible, predictable, and declines in real value over time.

I love my mortgage; have a strong emotional attachment to it. Im buying 30-40% LTV loans and bonds at 5-6%+, treasuries at 4-5%+ and equities at (a riskier “more”), have liquidity, convexity*, greater total return and lower risk on my side.


my only regret is not taking cash out in 2021, should have paid a higher rate to get a few hundred grand more of this amazing and beautiful liability.

We took out about 200k in 2021 and spent it on home renovations. Our rate is 2.375 for a 15 year mortgage. We will pay it off right around when we retire in 12 or 13 years.