Mortgage Recast vs Refinance Calculator

Related Calculators

Table of contents

• How to use
• Common mistakes
• Definitions
• Methodology
• Limitations & assumptions
• Sources

Recast: A lender recalculates the payment after you make an extra principal payment, while the same loan, APR, and remaining term stay in place.

Refinance: A new mortgage replaces the old mortgage, usually with a new APR, new term, and closing costs.

APR: Annual percentage rate. In this calculator, it is the yearly rate used to find the monthly loan payment.

Principal-and-interest payment: The loan payment before property tax, home insurance, HOA dues, and PMI are added.

Escrow: Money collected with the mortgage payment for bills such as property tax and home insurance. This calculator also groups HOA dues and PMI into the monthly add-on for budgeting.

Closing costs: Fees and charges paid to finish a mortgage refinance, such as lender and title charges [1].

Break-even time: The number of months needed for monthly payment savings to cover a fee or closing cost.

PMI: Private mortgage insurance, a monthly cost that may apply when the loan balance is high compared with the home value.

Mistake: Entering the original mortgage amount as Current loan balance.
Fix: Use the unpaid Current loan balance from your latest statement, not the price of the home or the starting loan amount.

Mistake: Typing a monthly rate into Current loan APR or New refinance APR.
Fix: Enter the yearly APR percent, such as 6.5, not 0.54 or a monthly interest rate.

Mistake: Using years in Months left on current loan or New refinance term.
Fix: Convert years to months, such as 25 years = 300 months and 30 years = 360 months.

Mistake: Putting yearly taxes into Property tax.
Fix: Enter Property tax as a monthly amount. Divide the yearly tax bill by 12 before entering it.

Mistake: Comparing Refinance monthly payment savings before escrow without looking at Refinance closing-cost break-even time.
Fix: Check how many months of savings are needed to recover Refinance closing costs, especially if you may sell or refinance again soon.

Mistake: Choosing Add closing costs to the new loan? without understanding the payment change.
Fix: If you choose Yes, Refinance principal-and-interest payment is based on Current loan balance plus Refinance closing costs.

• The calculator assumes fixed-rate, fully amortizing loans. It is not designed for adjustable-rate mortgages, interest-only loans, balloon loans, or loans with changing payment schedules.
• The same Property tax, Home insurance, HOA dues, and PMI amounts are added to each option. Real escrow amounts can change after a refinance, tax reassessment, insurance renewal, or PMI removal.
• Recast availability depends on the lender and loan type. Some loans cannot be recast, and some lenders require a minimum lump-sum payment.
• Refinance results do not include taxes, prepaid interest, escrow setup deposits, points, cash-out amounts, lender credits, or payoff statement adjustments unless you include them in Refinance closing costs.
• Break-even time uses principal-and-interest monthly savings only. It does not measure home equity, tax effects, investment returns, or the value of cash used for the Recast lump-sum payment.
• If monthly savings are zero or negative, the related break-even time is shown as not available because the fee is not recovered through lower monthly payments.
• Inputs must be nonnegative numbers, terms must be at least 1 month, and Recast lump-sum payment cannot be greater than Current loan balance.

How the loan payments are calculated

The calculator uses the standard fixed-rate payment formula for each loan option. It first converts APR percent to a monthly rate by dividing by 100 and then by 12.

monthly_rate = APR_percent / 100 / 12

payment = principal * monthly_rate / (1 - (1 + monthly_rate)^(-months))

if monthly_rate = 0, payment = principal / months

Current principal-and-interest payment uses Current loan balance, Current loan APR, and Months left on current loan.

current_pi_payment = payment(current_balance, current_apr, remaining_months)

Recast principal-and-interest payment subtracts Recast lump-sum payment from Current loan balance, then keeps the current APR and remaining months.

recast_balance = current_balance - recast_lump_sum

recast_pi_payment = payment(recast_balance, current_apr, remaining_months)

Refinance principal-and-interest payment uses the current balance plus financed closing costs if Add closing costs to the new loan? is set to Yes.

financed_closing_costs = closing_costs if financed, otherwise 0

refinance_pi_payment = payment(current_balance + financed_closing_costs, new_apr, new_term_months)

How monthly out-of-pocket payment is calculated

The calculator adds the same monthly escrow amount to the principal-and-interest payment for each option.

monthly_escrow_added = monthly_property_tax + monthly_insurance + monthly_hoa + monthly_pmi

current_monthly_out_of_pocket = current_pi_payment + monthly_escrow_added

recast_monthly_out_of_pocket = recast_pi_payment + monthly_escrow_added

refinance_monthly_out_of_pocket = refinance_pi_payment + monthly_escrow_added

lowest_out_of_pocket_payment = min(current_monthly_out_of_pocket, recast_monthly_out_of_pocket, refinance_monthly_out_of_pocket)

How savings, break-even time, and long-term costs are calculated

Monthly savings compare principal-and-interest payments only, because the same escrow amount is added to each option.

recast_monthly_payment_savings = current_pi_payment - recast_pi_payment

refinance_monthly_payment_savings = current_pi_payment - refinance_pi_payment

Break-even time divides the fee or closing costs by monthly payment savings. If savings are zero or negative, break-even time is not available.

recast_fee_break_even_months = recast_fee / recast_monthly_payment_savings

refinance_fee_break_even_months = closing_costs / refinance_monthly_payment_savings

The long-term cost outputs estimate interest plus fees or closing costs beyond the current balance. For a recast, the lump-sum payment is included in the cash flow and then offset when the current balance is subtracted, so it is not treated as an added cost.

current_remaining_interest = current_pi_payment * remaining_months - current_balance

recast_remaining_interest_and_fee = recast_pi_payment * remaining_months + recast_lump_sum + recast_fee - current_balance

upfront_closing_costs = closing_costs if not financed, otherwise 0

refinance_interest_and_closing_costs = refinance_pi_payment * new_term_months + upfront_closing_costs - current_balance

Mini example

Suppose Current loan balance is $120,000, Current loan APR is 0 percent, Months left on current loan is 120, Recast lump-sum payment is $24,000, New refinance APR is 0 percent, New refinance term is 240 months, Refinance closing costs are $6,000 paid upfront, and Monthly escrow added to each option is $300.

The current payment is $120,000 / 120 = $1,000 per month before escrow. The recast payment is ($120,000 - $24,000) / 120 = $800 per month before escrow. The refinance payment is $120,000 / 240 = $500 per month before escrow.

After adding $300 of escrow, the out-of-pocket payments are $1,300 current, $1,100 recast, and $800 refinance, so Lowest monthly out-of-pocket payment is $800 per month. Refinance monthly payment savings before escrow are $500, so the $6,000 Refinance closing-cost break-even time is 12 months.