Can You Recast a VA Loan?
You typically can't recast a VA loan or most other government loans. However, options such as refinancing or loan modification may be available to reduce payments. Veterans Guide explains what veterans dealing with home loans need to know about recasting and its alternatives.
A mortgage recast involves making a lump sum payment toward your loan principal to lower your monthly payments. Recasting is often an appealing solution for homeowners because it can increase cash flow and help them achieve financial stability.
Unfortunately, most lenders don’t allow you to recast a VA home loan—but you have other options. To save money on your VA home loan, learn more about recasting and its alternatives, including refinancing.
Why Are VA Home Loans Not Eligible to Recast?
If you have received a significant amount of money, using it to recast your mortgage might seem like a helpful way to reduce your monthly payment. However, most lenders do not allow recasting of VA loans due to government requirements and preferences for refinancing.
How Recasting Works
Loan recasting is a solution for homeowners who want to lower their monthly mortgage payments by making a large lump sum payment toward the principal balance. The lender then recalculates the monthly payments based on the remaining balance.
Also known as loan re-amortization, recasting is beneficial because it allows you to make smaller payments without changing your interest rate or the original loan terms. It’s also a faster and simpler process than refinancing because the lender often doesn’t review your credit, and you don’t have to meet any income requirements.
However, you need a substantial amount of cash to apply to your balance, and your lender must allow recasts for your loan type.
Why Recasts Don't Apply to VA Loans
While the Department of Veterans Affairs does not explicitly prohibit recasting, you generally cannot recast a VA home loan due to these loans’ unique structure and requirements. Strict regulations govern government-backed loans, so lenders cannot offer recast options. They prefer that buyers use refinancing and other solutions that align with government guidelines.
Although recasting is usually a straightforward process, lenders have less flexibility under the VA rules for loans. The lack of recasting is frustrating to some homeowners. However, because the government backs VA home loans with guarantees, lenders offer more favorable terms. Thus, VA home loans have other significant advantages that prioritize long-term affordability and low upfront costs for veterans.
For example, veterans can receive VA loans without down payments, so they don’t need large sums of money to purchase a home. Similarly, the government and lenders prioritize refinancing over recasting for VA home loans because it doesn’t require significant cash reserves.
Other Ways To Reduce Your VA Loan Payments
Recasting isn’t the only approach to reducing your mortgage payments. You may have several other options, including refinancing with different types of VA home loans, to keep money in your bank account each month and save interest over time.
Refinance Your Loan
One of the most common strategies veterans use to lower their mortgage payments is refinancing. Unlike a recast, which preserves the original loan terms, a refinance involves obtaining an entirely new mortgage loan. As a result, the process is more complex than a typical recast.
Conventional refinances are often similar to applying for an initial loan. The lender will request an appraisal, verify your income, and check your credit. However, veterans have access to a special type of refinancing option, known as the Interest Rate Reduction Refinance Loan, or IRRL, which doesn’t have such requirements.
Apply for a VA Interest Rate Reduction Refinance Loan, or IRRRL
An IRRRL is a benefit exclusive to veterans and helps them refinance their homes more quickly and easily. To qualify, you must meet the following requirements:
- You currently have a VA home loan.
- You live in or previously lived in the home financed by the loan.
- You’re using the IRRL to refinance your VA loan.
- You have a history of making on-time payments on your current loan.
An IRRRL can lower your monthly mortgage payment by reducing the interest rate. It could also transition your loan from a variable interest rate to a fixed one, making your payment more predictable and simplifying your budget.
The VA IRRRL process is typically faster than the initial VA home loan process, as it requires minimal paperwork and eliminates the need for an appraisal. You have to pay a funding fee and closing costs when refinancing a VA loan, but you can usually roll them into your loan balance to avoid covering these expenses upfront.
Pay Extra Toward the Principal
If you’re not interested in or don’t qualify for VA loan refinancing options, another alternative is paying down your principal balance. You can use one of these methods to make extra payments:
- Increased monthly payments: Add a fixed amount of money to your mortgage payment and specify you want to apply it to the principal balance.
- Biweekly payments: Make half of your monthly payment every two weeks, which results in one extra monthly payment each year.
- Lump-sum payments: Although you can’t recast to lower monthly payments, you can still reduce your loan balance by making a one-time, lump-sum payment.
These additional payments won’t lower your monthly bill, but they will ultimately save you money in the long run. Paying down the principal on a VA loan more quickly means you don’t spend as much on interest over the life of the loan. For example, if you can pay off your loan in 25 years rather than 30, you avoid paying interest on the remaining 5 years of your loan term.
Making extra payments can also help you build equity in your home more quickly and lower your debt-to-income ratio, or DTI. These steps are beneficial if you apply for another loan in the future.
Request a Loan Modification for Financial Hardship
Loan modification is a viable solution for some borrowers with VA loans, but eligibility depends on your financial situation. Most lenders only allow modifications if you’re facing a hardship, such as a foreclosure.
With a modification, you’ll roll any missed mortgage payments and associated legal costs into your loan balance. This helps you catch up on any past-due payments and fees so you don’t lose your home due to non-payment.
Like recasting, a loan modification changes your monthly mortgage payment, but the amount depends on current interest rates. While modifying your loan could potentially lower your payment, it could also cause it to increase. If the modification extends your loan term, it will also result in paying more interest.
Common Questions on VA Loan Recasting
How Do I Refinance My Loan?
Although lenders generally don’t allow homeowners to recast government-backed loans, including VA loans, they may offer the option to refinance. To apply for a VA refinance loan, contact a lender and submit an application.
If you’re seeking a VA IRRRL, provide a copy of your certificate of eligibility, complete the lender’s application form, and pay any closing costs, which are usually between 2% and 6% of the total loan amount.
Can I Make Extra Payments on My VA Loan To Lower My Monthly Payments?
You can pay extra on your VA home loan, but it won’t lower your monthly payments. Instead, it will shorten the loan term, which reduces the amount of interest you ultimately pay.
Take Control of Your VA Loan
Recasting a VA loan isn’t a common option, but you can find other ways to reduce your monthly payments. Refinancing or modifying your loan could make your mortgage more manageable. You can also pay more than your monthly bill to save on interest in the long run.
Whether you have questions about VA home loan eligibility or want to apply for a VA IRRRL, speaking to a loan advisor is a good first step.
