Recasting (also, loan recasting/ mortgage recasting) is a process involving a re-amortization of an existing loan, without changing the loan’s term or interest rate. This happens through making a lump-sum payment that allows a borrower to pay off the loan sooner than planned. Effectively, a borrower can simply lower monthly payments on the loan while also paying less interest over the term of the loan.

Refinancing involves an application for a new loan that is subject to a new interest rate, and in normal situations it is transacted with a new lender/ financier. A borrower opting for refinancing aims to get a lower interest rate, a shorter term, or both. A lower interest rate, with the term unchanged, will lead to reduced monthly payments and will lower total amount of interest paid over the term of the loan. Normally, shorter periods are associated with lower interest rates since the risk premium is proportionately lower.

In view of the above, recasting is the re-amortizing of an existing loan, with the same lender, but specific changes in the structure of the loan. Refinancing involves obtaining a new loan with a new rate, and possibly a new term, to pay off a borrower’s existing loan.

Recasting is less cumbersome in terms of lower costs and time (legwork, etc.) It reduces a borrower’s monthly expenses, but it does not change the loan terms or interest rate. Refinancing is more expensive and gives rise to specific types of costs (closing costs), but may save a borrower significant amounts if the terms of the new loan involve lower rates and monthly payments.