Quick answer
Quick answer: A recast keeps your existing note/rate and lowers payment by spreading a smaller balance across the same remaining term after a lump-sum principal payment plus a modest servicer fee. A refinance replaces the whole contract to change rate, term, or lien structure—useful when market rates improved enough to clear thousands in closing costs (break-even math).
Definitions in one minute
- Recast: lower payment because principal dropped and remaining term is re-spread—APR on the note typically unchanged unless your product ties differently (verify).
- Rate/term refi: new underwriting, new APR, new disclosures; you may also change term or product.
- Cash-out refi: new first lien for larger balance—different risk/cost profile than recast; see HELOC vs cash-out comparison.
Side-by-side: recast vs refinance
| Factor | Recast | Refinance |
|---|---|---|
| Typical cash to close | Lump principal + small recast fee | Origination + title + appraisal + escrows |
| Rate change? | Usually no—payment drops from principal | Yes—market rate at application |
| Best when | Windfall principal, like your note rate, hate closing costs | Material rate improvement, term change, ARM reset avoidance |
Numeric vignette (same rate, same remaining term)
Assume the note stays at 6.50% fixed with 25 years remaining on the amortization clock. Principal-and-interest only:
| Balance before lump sum | $400,000 → P&I ≈ $2,701/mo |
| After $60,000 principal reduction → recast | $340,000 → P&I ≈ $2,296/mo (~$405 lower) |
| Servicer recast fee (illustrative) | $250–$500 common—compare to $4k–$8k+ refi closing costs |
This is not a forward-looking market call—if today’s quoted refi rate is materially below your note, only a refi captures that repricing; recast only reallocates principal you already paid.
When recast usually wins
You received a large bonus or equity event, want a lower payment without repricing credit, and your current note rate is already attractive versus market. Recast preserves the cheap money and avoids a full refi cycle.
When refinance usually wins
Market rates fell enough that interest savings alone justify closing costs—model months-to-breakeven using refinance break-even. Also choose refi if you need to drop MI, switch from ARM to fixed, or consolidate liens.
Closing costs vs payment change
Rule: divide total lender/title costs by monthly payment reduction to get breakeven months. Recast fees are smaller but also shrink payment less if your rate is unchanged. If refi saves $220/month after-tax cash flow but costs $6,600, breakeven ≈ 30 months—decide if you will keep the loan that long.
Points and fees change true cost—read origination fees and points before comparing offers.