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Mortgage: Re-fi or pay to principle?

Bought my house three months ago and paid 20% down. Now I'm receiving some gift money from my parent. It's about 30% of what the house is worth. If I pay it towards principle, will that bring down my monthly mortgage payment? Or it's better to just re-finance? Please help. Thanks!!!!!
  • September 23 2013 - Olathe
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Answers (7)

No it will not. It will make the end of the loan come earlier but you still need to pay the same payment each month. Rather than paying it for 30 years it might reduce to something like 15 years, but the monthly payment remains the same.

Go speak to your lender about a re-fi or adjustment with a payment.
tim
  • September 23 2013
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Call your servicer and ask if they will recast the loan with a large principal payment, save the closing costs. 
  • September 23 2013
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The answer depends upon several factors.  First, if you have a 30 year fixed mortgage, paying down the principle will not lower your payment.  It will shorten the term; however.  If you have an adjustable mortgage, the loan will recast at the time of adjustment...resulting in a lower payment based upon the new principle balance.

Refinancing may be an option; however, there is a good chance that rates are higher than your current mortgage, so that would not make sense.

One other option would be to contact your existing lender and inquire whether they will voluntarily recast the loan...  I am not sure you will have any luck with this, but it is worth a try.

All my best,

Deborah
NMLS #279125
WJ Bradley

  • September 23 2013
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Agree with Clay,

Ask your servicer to recast your mortgage.  This will save you the costs of a refinance.  As long as your mortgage is not an FHA or VA loan, this will be the best option.  Judging by 20% down, you should be in a Conventional loan and be in good shape.

Best of luck,

Bryan
  • September 23 2013
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As mentioned, a recast would be your best option if your rate is near or below current market rates, assuming you are eligible and your lender agrees to do so. If your rate now is above available market rates, you may want to refinance to both adjust your payments and lower your rate at the same time. Or you could simply make a lump sum principal reduction. This will not affect your payment, but it will take years off the end of your loan term because more of your monthly payments will go to principal than they would have without the lump sum payment. 

Best of luck!

  • September 23 2013
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Clay and others are exactly right about the re-cast.  Many lenders will do that for an administrative fee - usually in the range of $250.00.  But I have one other question...how liquid are you?  If you pay down principal on a mortgage, the only way to retrieve it is to refinance (or sell the home)...it's not a line of credit. So while reducing your debt is a good thing, I would recommend that you look at your entire financial picture before you do it. 
  • September 24 2013
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Here's a response that will get you thinking... Forget refinancing.. if you locked in and closed 3 months ago, your rate is still GREAT! Forget paying down the principal -and dropping that money into a bucket that doesn't do anything for you! your home doesn't care how much you sell it for down the road, it will be worth the same whether you're free and clear or owe million on it. SO - that being said - if you're coming into a chunk of money, contact your financial planner and invest the money. This way you can take the money that you invested and apply the money earned towards additional principal payments and down the road, when the house is eventually paid off - you still have the 30% that you would've chunked down on the house PLUS the house free and clear! leverage the money properly - and it's a great play. In this market - even some conservative blended investments are earning 4% and that's likely to be around what you're paying on your interest rate now. 
Best of luck in your decision- if you would like to run specific numbers, on what it would do for your payments by refinancing vs. cross leveraging it. Please feel free to email me and i'll be happy to lend a hand.

Michael 
  • September 25 2013
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