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The “Secret” to Lowering Your Mortgage Payments

Today I’m sharing a little-known way to slash your mortgage payments, save tens of thousands of dollars in interest, and pay off your mortgage as fast as possible.

It’s called “recasting,” and a lot of banks offer this mortgage feature, pretty much for free. It might cost you a few hundred dollars—but that’s peanuts compared to how much you could save.

So let’s talk about how recasting works…

Say you have an ordinary, 30-year fixed-rate mortgage. You can prepay the mortgage by sending in additional principal. When you do that, you shorten the length of your mortgage. So instead of a 30-year mortgage, you have a 29-year mortgage, or a 28-year mortgage, etc.

The more additional principal you pay, the shorter your mortgage gets, until you finally pay it off.

Now, when you recast your mortgage, you send in additional principal, just like you did in the first scenario. But this time, it’s a large lump sum. The bank might require anywhere from $5,000 to $20,000—at minimum.

In this case, the length of your mortgage stays the same, but your monthly payments go down. In other words, you still have a 30-year mortgage, but with lower payments.

You Can Pay Off Your Mortgage Really Fast

When you recast, you pay less interest overall, which is good. But you’re also freeing up cash flow—which you can put to work.

For example, say you recast and your monthly payment drops from $3,400 to $2,600. You’ve just freed up $800 a month.

Now, instead of spending $800 on this or that, you could send it in as additional principal. That’s where the magic really starts.

It’s certainly worth recasting once, maybe even twice. After that, just keeping paying your new lower mortgage, plus additional principal. That’s how you pay off a mortgage really, really fast.

I had lunch recently with a guy who’s actually doing this. He started with a 15-year fixed mortgage. Now he’s planning to pay it off in 5 years. That’s pretty cool.

You Either Prepay or Overpay

Most people have no clue how much interest they’re paying if they don’t prepay.

For example, say you buy a $500,000 house. You put down 20%, so that’s $100,000. Then you get a $400,000, 30-year fixed mortgage at 3.5%.

Over the life of the mortgage, you’re paying $247,000 in interest. So that $500,000 house costs you $747,000. Ouch.

It doesn’t take much to soften the blow here. If you pay an extra $250 a month, you will pay off your mortgage in 24 years instead of 30. And you’ll only pay $193,000 in interest. That’s $54,000 less!

Think about it: $250 a month is doable. If you usually eat out twice a week and you cut back to once, that’s $250 a month… and that saves you $54,000. It’s a massive difference.

Your Goal Is a 10-Year Mortgage

My advice is to prepay your mortgage as aggressively as possible. Your goal should be to pay it off in 10 years, maybe even five.

Recasting is a great tool for this, especially if you’re taking out a larger mortgage. The loan officer at the bank isn’t going to bring it up. So ask! If it’s one of the big banks like Bank of America or Wells Fargo, you can probably get a loan with a recasting feature, and it shouldn’t cost you much.

This is a great way to keep the overall cost of your house in check.

Jared Dillian
Jared Dillian