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I have been paying additional principal every month on my 30 year fixed mortgage. As a result, I have paid more principal than expected, and can recast my mortgage to lower the monthly payments (and my lender does not charge any fees for this). Is there any downside to doing this? Of course, if the mortgage is recast and I adhere strictly to this new schedule and cease the additional payments, I will pay the mortgage off slower and therefore incur more interest. However, since I can still elect to pay additional principal each month if I decide to (which I would), it seems there isn't really any negative to the recast. Only the benefit that if I am, for whatever reason, tighter for cash one month I can elect to pay only this lower monthly charge? Am I missing anything? Why would anyone not recast their mortgage?

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  • I don't know how mortgage works in the US in regard to ealy repayment but mine in Canada limit my early payment to 25% of my regular monthly payment. So it could lower the maximum you can prepay – Rémi Aug 14 '20 at 18:57
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There's really no downside. For the mere mortal who spends their money on toys and alcohol, sticking to the original payment requirement is advised. But, you've proven that you're disciplined.

You ask why would one not do this? Because very few people pay ahead, and for those that do, very few banks make such an offer.

Say rates go back to 'normal' and your savings account yields 6%. Wouldn't it be nice to just deposit that extra money and get 6% vs the 4% or less that you pay on your mortgage?

It's always interesting to answer a question with no other details. I trust you have no other debt, no cards you pay high interest on. No car loan, etc. Personally, I'd pay the minimum on the mortgage and invest, long term. If paying off the mortgage helps you sleep better at night, recast, and keep making the extra payments.

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  • I recognize the tradeoff between paying down the mortgage faster vs utilizing those funds for investment. I have no credit card debt, a low rate auto loan that has no payments due for a year (paid a lot extra on there as well), and invest a much larger sum into the market than I do in paying ahead my mortgage (say additional mortgage principal is X, market investment is 5X, monthly). It is essentially an attempt at slight diversification. Also, my goodness what tf kind of savings account are you talking about? 6% is huge. – Runeaway3 Aug 14 '20 at 22:33
  • You seem to know what you’re doing. Good work – JTP - Apologise to Monica Aug 14 '20 at 22:35
  • @Runeaway3: What kind of savings account pays 6% or more? The ones in the late 1970s and 1980s. Here's rates for a 6 month CD in the 1980s: depositaccounts.com/blog/h istorical-cd-rates.html#CDRatesinthe1980s Anywhere from 5.7% to over 17%. How soon we forget... – jamesqf Aug 15 '20 at 4:58

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