Mortgage Recast in Canada: Lowering Your Payment After a Lump-Sum Prepayment

A mortgage recast, which Canadian lenders more often call re-amortizing or a payment recalculation, lowers your regular payment after you pay down a lump sum. The rate, the term and the maturity date stay as they are. The lender spreads the smaller balance over the amortization you have left, so each payment shrinks.

Without a recast, a prepayment usually works the other way: the payment stays the same, more of it goes to principal, and the mortgage is paid off sooner. A recast is the choice to take the benefit as a lower payment instead.

How a recast lowers the payment

Take a $400,000 balance at 5.00% with 20 years of amortization left, and a $50,000 lump-sum prepayment .

The payment falls by $329 a month, or $3,948 a year. If the rate stayed at 5.00% for the rest of the loan, interest over the 20 years would come to $201,985 instead of $230,840.

The payment drops in proportion to the balance: here the balance falls by 12.5%, and so does the payment.

Recast, prepay or refinance

Prepaying without a recast saves more interest. Keeping the higher payment on the smaller balance pays the loan off years early, so interest stops sooner. The recast trades part of that saving for monthly cash flow. The mortgage calculator with extra payments shows how much sooner a lump sum pays off your mortgage if you keep the payment.

Refinancing changes the rate and can add to the loan, but it means a new mortgage, an application and usually a penalty if you break the term early; how to refinance a mortgage covers the process. If the goal is a lower payment over a longer period rather than a smaller balance, extending your amortization is the closer comparison.

When a recast tends to fit

• A large one-time sum arrives (an inheritance, a bonus, the sale of another property) and lower fixed costs matter more than an earlier payoff date.
• Income is about to drop, as before retirement or after a separation, and the payment has to fit a smaller budget.
• The rate on the existing mortgage is one you want to keep, so breaking it to refinance makes no sense.

It fits less well when the aim is to be mortgage-free sooner, or when the lump sum is larger than your prepayment privileges allow, since the excess can trigger a penalty.

What lenders require

Whether a lender will recast, and on what terms, is set by your mortgage contract and the lender’s own policy. Few Canadian lenders publish a recast policy, so the practical step is to ask before making the prepayment. Points to confirm:

• The prepayment limit. The lump sum generally has to fit within your annual prepayment privilege; prepayment privilege rules explains how those limits work.
• Whether the payment changes automatically. Some lenders keep the payment unchanged unless you ask for a recalculation.
• Any fee and any minimum. Some lenders charge an administration fee or set a minimum prepayment.
• Good standing. Lenders generally expect the mortgage to be up to date on payments.
• Written confirmation of the new payment and the date it takes effect.

A recast keeps the same mortgage, so it doesn’t change the term, the maturity date or whether the loan is insured.

Common questions

Can I recast more than once? If the lender allows it, each prepayment within your privileges can be followed by another recalculation.

Does a recast reset my term? No. The term and maturity date stay the same; at renewal, the new payment is set on the balance and amortization left at that point.

Does a recast change the tax picture? Interest on a mortgage for your own home isn’t deductible in Canada. On a rental property, deductibility depends on what the borrowed money was used for, not on the payment schedule.

The mortgage payments hub lists the other guides on changing and managing your payment.