Mortgage Recast in Kentucky: FHA, VA, USDA & Fannie Mae Guidelines | Joel Lobb
Learn how mortgage recasting works in Kentucky. Discover eligibility rules for FHA, VA, USDA, Fannie Mae loans, fees, benefits, and alternatives. Call (502) 905-3708 to explore your options.
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If you're a Kentucky homeowner looking to reduce your monthly mortgage payment after coming into a lump sum of cash, a mortgage recast (also called re-amortization) may be a strategy worth exploring. However, not all loans qualify—especially government-backed mortgages like FHA, VA, and USDA loans.
In this comprehensive guide, I'll break down:
What a mortgage recast is and how it works
Which Kentucky mortgage loans do and don't allow recasting
Requirements, fees, timing, and pros/cons
Alternative options like refinancing and extra principal payments
Actionable steps and resources for Kentucky homeowners
By the end, you'll know whether recasting is a viable option for your situation—or whether another strategy is more appropriate for your Kentucky home loan.
What Is a Mortgage Recast?
A mortgage recast is a process where you make a significant lump-sum payment toward your loan's principal, and your lender then recalculates (or re-amortizes) your monthly payment based on the new, lower balance. Crucially, you keep your original interest rate and loan term—only your monthly principal and interest payment is reduced.
Key Differences from Refinancing:
No Rate Change: You retain your original, potentially lower, interest rate.
Lower Costs: The process typically involves a small processing fee ($250–$500) instead of thousands in closing costs.
Same Loan Term: Your mortgage maturity date does not change.
Simpler Process: It doesn't require a full credit check, appraisal, or income verification.
Because recasting keeps your interest rate the same, it's most beneficial when current mortgage rates are higher than your existing rate or when you want to avoid the high costs and complexity of refinancing.
Eligible & Ineligible Loans in Kentucky (FHA, VA, USDA, Fannie Mae)
One of the most critical questions is: which loans allow a recast? The answer depends primarily on the investor who backs your loan.
❌ Loans NOT Eligible for Recast
Ginnie Mae (GNMA) loans are not eligible for recasting. This is the single most important factor because most government-insured loans are packaged into Ginnie Mae securities. Therefore:
FHA Mortgages: FHA program rules do not include provisions for the re-amortization of existing loans.
VA Loans: The Department of Veterans Affairs does not permit recasting on the loans it guarantees.
USDA/Rural Housing Loans: These government-backed loans also do not allow for recasting.
Additional Exclusions:
Loans currently in an interest-only payment period.
Loans that are negatively amortizing (Adjustable-Rate Mortgages where the balance can increase).
Loans that are 30 or more days past due (your account must be current).
Bottom line: If you have an FHA, VA, or USDA loan in Kentucky, mortgage recasting is generally not an option.
✅ Loans Eligible for Recast
Conventional Loans (Fannie Mae & Freddie Mac): Most conventional loans allow for recasting. Fannie Mae's guidelines permit a servicer to re-amortize a loan after the borrower makes a "substantial principal curtailment" (a large lump-sum payment).
Jumbo or Portfolio Loans: Some non-conforming loans held by the original lender (portfolio loans) may allow recasting, but this is entirely subject to that lender's specific policies.
Key Takeaway: For most Kentucky homeowners, recasting is a tool available only for conventional loans.
Kentucky-Specific Considerations & Statutes
State Fee Limits
Kentucky law provides consumer protection by capping certain mortgage-related fees. Lenders are generally allowed to charge up to $300 for recasting under state fee schedules. This can be lower than the national average, which sometimes reaches $500.
Recording Requirements (Effective July 15, 2024)
Under a recent update to Kentucky law (KRS § 382.297), county clerks are required to record mortgage amendments, modifications, or extensions that meet statutory criteria. Because a recast modifies your payment terms, it may require proper documentation and recording in your county's mortgage records to be legally binding.
Action Item: Ensure your lender provides a well-drafted modification agreement that is written, signed, notarized, and references the original mortgage. This protects you and ensures compliance with Kentucky law.
Requirements, Fees & Timing (What You'll Need)
Here’s a practical checklist of what it typically takes to recast a mortgage:
Critical Note: Not every lender offers recasting—even if your loan type is eligible. You must verify directly with your loan servicer.
Bonus Benefit: Using Recast to Eliminate PMI (Private Mortgage Insurance)
One of the most powerful applications of mortgage recasting is eliminating Private Mortgage Insurance (PMI) on a conventional loan. This can lead to massive monthly savings.
How Principal Reduction Removes PMI
When you make a large principal payment that brings your Loan-to-Value (LTV) ratio down to 80% or less (based on the original property value), you can formally request PMI termination.
The LTV formula is:
Example:
Original Home Value: $250,000
Original Loan Amount: $237,500 (95% LTV with PMI)
Target Loan Balance for 80% LTV:
Principal Reduction Needed: $237,500 - $200,000 = $37,500
By making a $37,500 lump-sum payment and then recasting, you achieve two goals:
Lower your monthly payment due to the reduced principal balance.
Eliminate your monthly PMI payment (often $100-$300).
PMI Termination Requirements (Fannie Mae Guidelines)
To qualify for borrower-initiated PMI termination, you must meet these criteria:
Requirement: Your loan balance must be at or below 80% of the original value for a primary residence/second home (or 70% for an investment property).
Acceptable Payment History:
Your loan must be current.
You've had no payment 30+ days late in the last 12 months.
You've had no payment 60+ days late in the last 24 months.
Property Value Verification: The servicer must confirm that your property's current value has not declined below its original value.
The Combined Power: Recast + PMI Removal
When you pair a recast with PMI elimination, the monthly savings can be substantial.
Example Monthly Savings:
Principal Reduction Recast Savings: $150–$250/month
PMI Elimination Savings: $100–$300/month
Total Combined Savings: $250–$550/month
This is an excellent strategy for Kentucky homeowners who receive a financial windfall (inheritance, bonus), have been aggressively paying down their mortgage, and want to maximize their monthly cash flow without refinancing at today's higher rates.
Benefits & Risks: Is a Recast Worth It?
✅ Benefits
Lower Monthly Payment: Reduces your cash flow burden without changing your rate.
Keep Your Low Rate: You preserve the great interest rate you locked in years ago.
Eliminate PMI: Can be used to reach the 80% LTV threshold on conventional loans.
Low Cost: A small processing fee is much cheaper than thousands in refinancing costs.
Simple Process: Far less documentation and hassle than a full refinance.
⚠️ Risks / Limitations
Requires Substantial Cash: You need a significant lump sum available to make it worthwhile.
No Rate Reduction: If current rates are lower, refinancing is the better option.
Same Loan Term: It doesn't shorten your loan term or reduce total interest paid unless you continue making extra payments.
Not for Government Loans: FHA, VA, and USDA loans are generally excluded.
Not Universally Offered: Your specific loan servicer must offer recasting as an option.
For FHA / VA / USDA Borrowers: Alternatives to Recast
Since recasting is off the table for government-backed loans, here are your best alternatives:
Refinance to a Conventional Loan: This is often the best move. By refinancing out of a government loan into a conventional one, you can potentially eliminate mortgage insurance (like FHA MIP) and gain the ability to recast in the future.
Streamline Refinance:
FHA Streamline Refinance: For FHA-to-FHA loan refinancing.
VA IRRRL: The Interest Rate Reduction Refinance Loan for VA-to-VA refinancing.
USDA Streamline Refinance: A simplified option for current USDA borrowers.
Make Extra Principal Payments: You can always pay extra toward your principal without formally recasting. While this won't lower your required monthly payment, it will shorten your loan term and save you thousands in total interest.
"Cash-In" Refinance: When you refinance, you can bring cash to the closing table to reduce your new loan amount. This achieves a similar outcome to a recast but within a new loan structure, potentially with a better rate or terms.
If your goal is a lower monthly payment and you have an FHA, VA, or USDA loan, refinancing is typically your best path forward.
A Step-by-Step Guide to Recasting Your Mortgage
If your loan is eligible, here's the typical process:
Confirm Eligibility: Check your mortgage statement to confirm you have a conventional (Fannie Mae/Freddie Mac) loan.
Contact Your Loan Servicer: Call the customer service number on your statement. Ask them directly: "Do you offer mortgage recasting or re-amortization?" Confirm their specific requirements, minimum lump-sum payment, and processing fee.
Make the Lump-Sum Payment: Transfer the funds as directed by your servicer, ensuring the payment is designated specifically for "principal reduction."
Submit a Formal Request: After the payment posts, formally request the recast in writing (or as directed by your servicer).
Pay the Processing Fee: Pay the administrative fee, which is typically $250-$300 in Kentucky.
Sign the Agreement: Review, sign, and return the recast/loan modification agreement provided by your lender within the specified timeframe (usually 30 days).
Verify the New Payment: Once the process is complete, you will receive a notification of your new, lower monthly principal and interest payment. Check your next mortgage statement to ensure the change is reflected correctly.
Frequently Asked Questions
Can I recast my FHA/VA/USDA loan in Kentucky?
Generally, no. Government-backed loans, which are typically secured by Ginnie Mae, do not permit recasting under current program rules. You'll need to explore alternatives like refinancing.
Is there a fee for recasting my mortgage?
Yes, most servicers charge a processing fee, which typically ranges from $250 to $500. Under Kentucky state law, this fee is often capped at $300. Some servicers may offer it for free, so always ask.
How much of a lump sum is required to recast?
This varies, but the minimum is usually $5,000 or 10% of your remaining principal balance. Check with your servicer for their specific requirement.
Will recasting change my interest rate or loan term?
No. Your interest rate and the original maturity date of your loan remain exactly the same. Only the monthly payment amount is recalculated based on the new, lower principal balance.
Can I eliminate PMI with a mortgage recast?
Yes! On a conventional loan, if your lump-sum payment brings your loan-to-value (LTV) ratio to 80% or below (based on the original property value), you can request PMI termination. This is one of the most effective ways to significantly lower your monthly housing expense.
Additional Resources
Visit my website for:
Call/Text - 502-905-3708
www.mylouisvillekentuckymortgage.com
911 Barret Ave., Louisville, KY 40204
Evo Mortgage
Company NMLS# 1738461
Personal NMLS# 57916
Kentucky Mortgage Loan Expert For Kentucky FHA, VA, USDA, Fannie Mae and KHC Down payment Assistance Loans
NMLS ID: 57916
Company NMLS ID: 1738461
Licensed for Kentucky Mortgage Loans Only Equal Housing Lender
Disclaimer: This website is not endorsed by the FHA, VA, USDA, or any government agency. Information provided is for educational purposes and should not be considered legal or financial advice. All loan approvals are subject to underwriting guidelines.
Interactive Mortgage Recasting Guide
Your Personalized Tool for Kentucky Home Loans
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Use the sliders and fields below to model your own loan. The chart and summary will update instantly to show how a lump-sum payment could lower your monthly mortgage bill.
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Recasting vs. Refinancing
While both can lower your monthly payments, they work very differently. Recasting modifies your existing loan, while refinancing replaces it entirely. Choose the right path based on your goals and current interest rate.
Mortgage Recasting
- Goal: Lower payment after a large principal reduction.
- Interest Rate: Remains exactly the same.
- Loan Term: Remains the same (loan ends on the original date).
- Process: Simple administrative request with your current lender.
- Cost: A small fee, typically $250 - $500. No closing costs.
- Best For: Homeowners with a great existing interest rate who want to reduce their monthly cash outflow.
Mortgage Refinancing
- Goal: Get a new loan, usually to secure a lower interest rate.
- Interest Rate: Changes to the current market rate.
- Loan Term: Resets, often to a new 15 or 30-year term.
- Process: A full new loan application, credit check, and appraisal.
- Cost: Standard closing costs, typically 2-5% of the new loan amount.
- Best For: Homeowners who can get a significantly lower rate than their current one, or want to change loan types.
Is Your Loan Type Eligible?
Recasting policies are determined by the type of loan you have. Select your loan type below to see the general guidelines. Always confirm the specifics with your lender.
The 4 Steps to Recasting Your Mortgage
Contact Your Lender
This is the crucial first step. Call your loan servicer and ask if they offer "recasting" or "re-amortization." Confirm eligibility, the minimum required lump-sum payment, and any administrative fees.
Submit Request & Payment
Your lender will provide a simple form. You'll complete this and send it back along with your lump-sum payment, usually via wire transfer or cashier's check. Be sure to specify that the payment is for principal reduction and recasting.
Lender Recalculates
Once they receive your funds and request, the lender will pay down your principal balance. Then, they will re-amortize the new, lower balance over your remaining original loan term.
Receive New Payment Schedule
You will receive official notification of your new, lower monthly principal and interest payment. Your next payment will be at this new amount. The process is typically completed within one to two billing cycles.
