If you have extra cash of at least $5,000, do you want to put this into good use and pay down your mortgage principal? You can actually do better than that. You can ask your lender to re-cast your loan payment based on the original interest rate and terms. The idea is to lower your payments for the remaining life of your loan.

For example, let’s say you have an original loan of $400,000 with the following terms:

Original loan:             $400,000
Interest rate:             6.00%,   30-yr fixed
Monthly payment:   $2,398.20

It’s now 15 years later, and your remaining balance is $284,195.38

Balance after 15 yrs:             $284,195.38
Extra cash to pay down:       $5,000
New balance:                         $279,195.38
Re-amortize new balance over remaining 15 yrs
Interest rate:                         6.00%
New monthly payment:       $2,356.01
Payment permanently reduced by:            $42.19

If you increase your pay down amount to $10,000, your new reduced loan payment becomes $2,313,82, a reduction of $84.19. 

Re-casting or re-amortizing works well for homeowners who are unable to qualify for refinancing for various reasons. Some lenders may charge an administrative fee of somewhere around $150 to do this, and some may require a minimum pay down amount of $5,000. There are other caveats to this little known strategy, so make sure you check with your bank whether they offer this service.