Four ways to pay less on a fixed-rate mortgage
A fixed-rate mortgage charges interest each month on the balance you still owe, so anything that lowers the balance sooner, or the rate, saves interest. The four strategies here work at different times and solve different problems. All examples use a $400,000 30-year loan at 6.5%, which is $2,528 a month.
| Strategy | What it changes | Costs | Example |
|---|---|---|---|
| Recast | Lower required payment; same rate and payoff date | A lump sum plus a servicer fee (varies by lender) | $50,000 lump sum on $300,000 with 27 years left: payment drops $328 a month |
| Temporary buydown | Lower payment for 1-3 years, then the full note rate | The subsidy, usually paid by the seller or builder | 2-1 buydown: $2,027 in year 1, $2,271 in year 2, costs $9,104 |
| PMI removal | Drops the mortgage insurance line at 80% (request) or 78% (automatic) of original value | A written request; an appraisal if the servicer asks | $360,000 on a $400,000 home: request with payment 95, automatic with payment 109 |
| Extra payments | Shorter loan, less interest; same payment | Only the extra money, no fee | $200 a month on $350,000: paid off 6 years 2 months sooner, $108,097 less interest |
Which one fits your situation
If you have a lump sum and want a smaller required payment, recast; if you want to be done sooner, keep the payment and let the lump sum shorten the loan, which saves more interest and costs no fee. The recast calculator shows both side by side. If you are buying and the seller offers to pay closing costs, a temporary buydown turns that money into lower payments for the first years; discount points do the same for the whole term and usually win if you keep the loan long enough.
If you put down less than 20% on a conventional loan, mark the date the balance reaches 80% of the original value and ask to cancel PMI then rather than waiting for the automatic 78% date; the PMI removal calculator gives both dates and the PMI you save. And any spare cash each month goes furthest as extra principal, which the extra payment calculator turns into a payoff date.
The rules behind the numbers
PMI cancellation follows the Homeowners Protection Act, as explained by the CFPB: request at 80% of original value, automatic termination at 78% on the amortization schedule, and final termination the month after the midpoint of the term, all for borrowers who are current. Temporary buydowns follow the Fannie Mae and Freddie Mac selling guides: at most 3 points off, stepping up no more than 1 point a year, for no more than 3 years, with the borrower qualified at the full note rate. Recasts follow each servicer's own policy; Fannie Mae's servicing guide allows re-amortization after a substantial principal payment but sets no fee or minimum, so those vary by lender. Prepayment penalties, where a loan has one, usually apply only to paying off the loan within the first three or five years, per the CFPB.
Questions
What is the difference between a recast and a refinance?
A recast keeps your loan, rate and payoff date and only lowers the payment after a lump sum, for a small servicer fee. A refinance replaces the loan with a new rate and term and costs closing costs.
When does PMI go away on a conventional loan?
You can request cancellation when the balance reaches 80% of the home's original value, and the servicer must end it automatically when the balance is scheduled to reach 78%, if you are current on payments.
How much does a 2-1 buydown cost?
The sum of the payment reductions over the two years: about $9,104 on a $400,000 30-year loan at 6.5%, roughly 2.3% of the loan. A 3-2-1 on the same loan is about $17,889.
Is it better to recast or make extra payments?
Extra payments save more interest because the loan ends sooner. A recast lowers the required payment instead, which helps if you need the monthly room. You can do both.
Do these calculators work for ARMs, FHA or VA loans?
The math is for fixed-rate loans. PMI rules here cover conventional loans only; FHA mortgage insurance follows HUD's rules, and VA loans have no monthly mortgage insurance.
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