Re-cast your Loan
A term you may not have heard of, however, all conventional loans have this feature.
Let’s say you want to buy a home before you sell a home. You would love to put 20% down to avoid PMI but you do not have the net proceeds from the sale of the current home.
A strategy to consider.
If you can come up with 3% or 5% down from one of the other scenarios outlined, we may be able to use this plan of attack. Say you put 5% down, then sell your current home. Yes, you have PMI on the new home but would like to buy out of it. Take advantage of Re-casting the loan.
Contact your loan servicer, fill out a form, pay a nominal fee, typically $250 -$350. Next, inform the servicer you sold your home and want to send in an amount of money; $10k, $20k, $30k, does not matter. The servicer will take these monies and apply to the current mortgage balance. This will re-amortize your loan amount for the remaining term.
Yes, lower your payment, and eliminate the PMI if enough cash is applied to the mortgage.
Now, you are out of PMI, your payment is lowered and life is good. Many loan officers may say you would need to do refinance loan. This has higher costs associated and you would be subject to current market interest rates. What if they are higher when you are ready to make a move? With a Re-cast you are subject to nominal fees and the fear of higher interest rates will not exist. You keep your current interest rate.
Note: The only time you would want to refinance is if the market interest rates lower from the time you originally closed.
This powerful option, understood by few, eliminates the mortgage institution from obtaining another new mortgage transaction on behalf of you the consumer. Maybe this is why it is seldom discussed? Really cool option.