One keeps your interest rate and costs a few hundred dollars. The other replaces it and costs thousands. The right answer depends almost entirely on what has happened to rates since you closed.
Short version: If your current rate is lower than today's rates, recast. If today's rates are meaningfully lower than yours, run the refinance numbers. Rates are the deciding factor, not the lump sum.
A recast leaves your loan alone. You send a lump sum to principal, your servicer recalculates the monthly payment on the smaller balance, and everything else — your rate, your remaining term, your loan number — stays exactly as it was. There is no application, no credit check, and no appraisal. The fee is typically $150 to $500.
A refinance replaces your loan entirely. You apply for a new mortgage, the lender pulls your credit and orders an appraisal, and at closing the new loan pays off the old one. You get a new rate and a new term. Closing costs generally run 2% to 5% of the loan amount, which on a $340,000 balance means $6,800 to $17,000.
| Recast | Refinance | |
|---|---|---|
| Interest rate | Unchanged | New rate, market-dependent |
| Cost | $150–$500 | 2%–5% of loan amount |
| Credit check | No | Yes |
| Appraisal | No | Usually required |
| Lump sum needed | Yes, usually $5,000+ | No |
| Payoff date | Unchanged | Resets to the new term |
| Timeline | 2–6 weeks | 30–60 days |
Recasting is the clear answer when your existing rate is good and you simply have money to put down. Millions of homeowners who closed between 2020 and 2022 hold rates in the 2.75% to 4% range. Refinancing out of a 3% loan into a 6.5% loan to lower a payment is arithmetic that never works — the new rate erases the benefit of the smaller balance many times over.
The second case is a sale that closes after a purchase. You buy the next house with a full mortgage because the old one has not sold yet. When it finally closes, you apply the proceeds to the new loan and recast. Your payment drops to what it would have been if you had made a larger down payment, and you skip the cost and complexity of a bridge loan.
If market rates have fallen well below your current rate, a refinance can beat a recast even after closing costs — because it changes the rate on the entire balance, not just the payment schedule. The rough test is whether your monthly savings cover the closing costs before you expect to sell or move again.
Refinancing is also the only option in two situations a recast cannot address: you want to shorten the term, or you need to pull cash out of your equity. A recast can do neither.
And if you have no lump sum, the comparison is moot. A recast requires money you do not currently owe on the loan; a refinance does not.
There is a third path that neither name describes: send the lump sum to principal and keep making your current payment. Your balance falls, your payment stays the same, and the loan ends years early. This saves more total interest than a recast — often substantially more — because every dollar of the old payment now attacks principal.
The trade-off is cash flow. A recast frees up money every month. Paying down without a recast does not. Neither is wrong; they answer different questions.