Refinancing your mortgage is expensive, especially if you just want to lower your monthly payments. Closing costs can be in the thousands of dollars because you’re essentially applying for a new loan. Is there another way to lower your monthly payment? Yes: You can recast your mortgage.

In simple terms, a mortgage recast involves making a lump-sum payment toward the principal balance of your loan which the lender uses to create a new amortization schedule which will lower your monthly payments.

Every mortgage has an amortization schedule that directs part of your payment to reducing principal or toward paying interest. These amounts change slightly every month, until your payments go from paying mostly interest to paying down your principal. With a recast, your interest rate and term remain the same, but your monthly payments are lower because you paid a lump sum toward the principal.

To qualify for a recast, you’ll need a minimum of $10,000 and you’ll pay a service fee of approximately $250. Though the recast isn’t a new loan, you must qualify to get one:

  1. Lenders may have differing requirements and fees, from the amount of the lump-sum payment, to how many on-time payments you’ve made, to how much equity you have in your home.
  2. Recasts are not available on government-guaranteed loans such as FHA, VA, or USDA.

When you receive a bonus at work or decide to close out your savings, it’s a great idea to build equity in your home.