For most of us, a home is the most expensive investment we will ever make, and it’s a good one. Throughout the scripture from the first pages of Genesis, God talks about land as a possession and an investment worthy of our efforts and says in Jeremiah 29:5, “Build houses and live in them; plant gardens and eat their produce.” But getting the best deal on that land is a process!

Whether to refinance or recast a mortgage cannot be answered with a simple yes or no. It would be best to consider a few things before choosing the best option.

Refinancing a mortgage is typically driven by the desire to get a lower interest rate on your loan, which reduces the cost of what you are paying to borrow money. It involves a credit check, fees based on the size of the mortgage, and a legal process similar to what you went through to get the loan in the first place.

Much less well-known is recasting a loan. Banks don’t like advertising this option because they make lower profits on the process, and not all loans qualify. (For example, it is harder to get approval for recasting a variable rate loan.) But if your mortgage loan does qualify, recasting involves putting cash down on the principal (the amount you borrowed) and then recalculating the loan for lower payments. Your original interest rate stays the same as does the length of your mortgage (a 15, 20 or 30-year loan remains that), but the net effect is you owe less money on the principal and now have a lower monthly payment.

You will generally need at least $5,000 to put down on the mortgage to get approval. One good reason to recast is if you have a“jumbo loan,” a large loan for which the bank can charge a higher interest rate. Getting under that federal limit could be a good move.

Houselogic.com lists these reasons for considering a recasting:

  • You’re self-employed or have poor credit, making refinancing a tough proposition.
  • You recently refinanced your mortgage and didn’t want to go through the cost and hassle again.
  • You received an inheritance and believe you’re better off putting it toward your mortgage rather than investing it.
  • You foresee trouble down the road — a downturn in your industry — and want to lower your monthly mortgage payments now to prepare for that.
  • You usually invest spare cash in the stock market, but the outlook is so bleak you might as well reduce your mortgage. This is especially true if you also have a high mortgage and can’t refinance.

I see the real advantage of recasting as a direct reduction of overall debt and lower monthly payments regardless of the motivations.

Regarding the other option, a real disadvantage to refinancing is that you spend money on fees that do not reduce your mortgage principal but also restart the amortization of your note. This means you start overpaying higher amounts of interest on the front end of your mortgage.

Both options require cash and offer the opportunity to lower your monthly payments. Recasting will reduce your mortgage. Refinancing will get you a lower interest rate and possibly a lower overall cost of your mortgage.

But getting rid of a mortgage has other financial implications. The Wall Street Journal notes: “There are downsides to the strategy (of recasting). Many financial experts advise against putting additional cash into one’s residence, arguing that higher returns historically have been available in the financial markets and interest rates on bonds are likely to rise eventually. They also warn of the possible tax consequences of retiring a mortgage early because mortgage interest on a primary residence can be tax-deductible.”

While these arguments have some merit, it is important not to forget the value of cash on hand for a day of disaster.

The Bible recommends saving 20 percent of their income in good times to prepare for the bad. You never know when you might lose your job or your health might be jeopardized. If you recast your loan and then lose your job, you can’t get that cash back unless you sell your home or borrow against your home equity.

In an uncertain world, consider carefully all your options for available cash. Refinancing makes sense to lower the cost of debt depending on your interest rate, and recasting makes sense if you have sufficient savings and other investments (like retirement) in order. But be sure to have resources in reserve to meet unknown events. So there are the pros and cons of each option.

From a Biblical perspective, it is best to have sufficient money in an emergency savings account, work to pay off your mortgage and become totally debt-free. Without knowing more about your circumstances, I would lean towards recasting but keeping your monthly payments the same and applying the maximum amount possible towards reducing your mortgage each month.

Need to consolidate high-interest bills to free up money to pay down your mortgage? An AdelFi personal loan offers financial flexibility for a variety of situations. We’ll work with you and your family to create a financing solution with the right terms and rates to meet your unique borrowing needs.

This article has been adapted for use by AdelFi for the benefit of its audience and in exclusive partnership with Crown Financial Ministries. This article was originally written by Chuck Bentley, CEO of Crown Financial Ministries, and posted to Crown.org. To learn more about Crown’s mission, go to crown.org.