Short answer: in a recast, you pay a lump sum toward principal and the servicer recalculates your payment over the remaining term, keeping your rate and loan. A refinance replaces the loan with a new one, with a new rate, term and closing costs. We found no federal rule that requires a servicer to offer a recast, so whether one is available depends on your loan terms and the servicer; ask. This page covers federal law only; other rules may apply where you live. It is general information, not legal or financial advice.
Recast vs refinance at a glance
| Item | Recast | Refinance |
|---|---|---|
| Loan | Same loan | A new loan pays off the old one |
| Interest rate | Same rate | New rate |
| Remaining term | Same remaining term | New term |
| What lowers the payment | The lump sum lowers the balance | A lower rate, a longer term, or both |
| Costs | Ask the servicer about any fee | Closing costs on a new loan, disclosed on a Loan Estimate |
| Federal rule requiring it | None found | Not a right; it depends on qualifying for a new loan |
Example math
This example is only for the math, with an example balance, rates and costs, not terms from any lender. Payments are principal and interest, rounded to the dollar; interest totals use those rounded payments over the remaining term.
| Item | No change | Recast after a $50,000 lump sum | Refinance after the lump sum |
|---|---|---|---|
| Balance | $300,000 | $250,000 | $250,000 |
| Rate and remaining months | 6.0%, 300 | 6.0%, 300 | 5.0%, 300 |
| Monthly payment | $1,933 | $1,611 | $1,461 |
| Interest over the remaining months | $279,900 | $233,300 | $188,300 |
| Closing costs (example) | None | Ask the servicer | $5,000 |
In this example, the recast lowers the payment by $1,933 − $1,611 = $322 a month, and lowers interest by $279,900 − $233,300 = $46,600, because the balance is smaller. Compared with the recast, the refinance saves another $233,300 − $188,300 = $45,000 in interest, or $45,000 − $5,000 = $40,000 after the example closing costs. With a different rate gap, costs or time in the home, the result is different. If you keep paying the old payment instead of recasting, the extra principal shortens the loan rather than lowering the payment; see biweekly loan payments.
How payments must be credited
For a closed-end loan secured by your principal dwelling, a servicer must credit a periodic payment as of the date it is received, unless a delay causes no charge and no negative credit reporting (12 CFR 1026.36(c)(1)(i), eCFR, text up to date as of October 28, 2026, read October 30, 2026). A periodic payment is an amount that covers principal, interest and escrow for a billing cycle. The official comments say the method of crediting periodic payments follows the legal obligation between you and the creditor (Supplement I, comment 36(c)(1)(i)-2, eCFR). That rule is written for periodic payments; for how a lump sum toward principal is applied, read your note and ask the servicer in writing. See mortgage payment crediting rules.
Prepayment penalties
For loans covered by the ability-to-repay rule, a prepayment penalty is allowed only on certain fixed-rate qualified mortgages that are not higher-priced, only for the first three years, and only up to 2 percent of the balance prepaid in the first two years and 1 percent in the third (12 CFR 1026.43(g)(1)-(2), eCFR). The CFPB says a prepayment penalty could apply in some cases if you pay off a large amount at once (CFPB, last reviewed September 11, 2024, read October 30, 2026; this page may be out of date). Check your loan documents before a lump-sum payment or a refinance.
Effect on PMI removal
For a fixed-rate loan, you may ask to cancel private mortgage insurance on the date the principal balance, based on actual payments, reaches 80 percent of the original value, if you meet the other conditions such as a good payment history (12 U.S.C. 4901(2)(A)(ii), LII; 4902(a), LII; read October 30, 2026). A lump sum lowers the actual balance, so it can bring that date closer. Automatic termination at 78 percent is based on the original amortization schedule, not on extra payments (4901(18)(A)). See how to remove private mortgage insurance and the CFPB answer on removing PMI.
Questions to ask the servicer
- Does my loan allow a recast, and is there a minimum lump sum or a fee?
- Will my rate and remaining term stay the same after a recast?
- How will you apply a lump-sum payment I send, and can I mark it for principal only?
- Does my loan have a prepayment penalty, and when does it end?
- Will the lower balance let me ask to cancel PMI, and what evidence of value do you need?
Checklist
- Get the recast terms in writing before you send a lump sum.
- Compare the new payment and total interest for a recast and a refinance.
- Add closing costs and the time you expect to stay to the refinance comparison.
- Check your loan documents for a prepayment penalty.
- Confirm on your next statement that the lump sum went to principal.
You can submit a complaint at consumerfinance.gov/complaint.
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Sources
- eCFR: 12 CFR 1026.36, Prohibited acts or practices and certain requirements for credit secured by a dwelling (Regulation Z), current text up to date as of October 28, 2026
- eCFR: Supplement I to Part 1026, Official Interpretations (Regulation Z), current text up to date as of October 28, 2026
- eCFR: 12 CFR 1026.43, Minimum standards for transactions secured by a dwelling (Regulation Z), current text up to date as of October 28, 2026
- CFPB: What is a prepayment penalty? (last reviewed September 11, 2024)
- Cornell LII: 12 U.S. Code 4901, Definitions (Homeowners Protection Act of 1998)
- Cornell LII: 12 U.S. Code 4902, Termination of private mortgage insurance (Homeowners Protection Act of 1998)
- CFPB: When can I remove private mortgage insurance (PMI) from my loan? (last reviewed August 28, 2026)
- CFPB: Submit a complaint
Disclosure: Modern Lending Solutions is not a lender, loan broker or agent for any lender or loan broker, and does not make credit decisions. Any compensation we receive is paid by participating lenders, only for advertising services. This guide is general information, not financial or legal advice.