Yield spread premiums and lender kickbacks
Frequently Asked Questions
Straight answers to the questions we hear most.
Yes, but less than you might think. Since you are making a large principal payment, you will pay less interest over the life of the loan. However, because your monthly payment is subsequently lowered, you are paying down the principal more slowly each month than if you had not recast. The primary interest savings come from the initial lump sum, not the recast itself.
An origination fee is a charge from the lender for processing your new loan application. This fee is typically between 0.5% and 1% of the total loan amount and covers the cost of underwriting, administrative work, and document preparation.
Your new rate is determined by a simple formula: Index + Margin. The Index is a benchmark interest rate that reflects the broader market (like the SOFR or Treasury Index). The Margin is a fixed percentage amount set by your lender and added to the index. This sum becomes your new interest rate.
An escrow overage occurs when there is more money in your account than is needed to pay the bills. If the overage is $50 or more, your servicer is required by law to issue you a refund check within 30 days of the annual escrow analysis. If the overage is less than $50, they may refund it or apply it to your next year’s escrow payments.
A recast involves making a large lump-sum payment toward your principal, after which your lender re-amortizes your loan. This lowers your monthly payment, but your interest rate and loan term remain the same. It typically has a low processing fee. A refinance replaces your existing mortgage with an entirely new loan, potentially with a new interest rate, term, and monthly payment. It involves full closing costs and is best for securing a lower interest rate.
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