Recast or Buy Points? Two Ways to Lower a Payment

Both products exist for the same reason: the payment is too high and something has to give. Buyers compare them casually, as if they were two settings of the same dial. They are not. Points and a recast act on different variables, break even on completely different clocks, and one of them can be wiped out by a decision you make two years later.

The short answer

Points buy a lower interest rate. A recast buys a smaller balance. Points take about five years to pay for themselves at typical pricing. A recast pays for itself in under a month.

On cost per dollar of payment relief, points are actually the more efficient purchase — roughly two and a half times more efficient in the example below. The problem is scale: points are capped at a few percent of the loan, so they cannot produce the payment cut that a large lump sum can.

What each one changes

A point is one percent of the loan amount, paid at closing, in exchange for a lower rate. On a $320,000 loan, one point is $3,200 and typically buys a quarter of a percent. The balance never changes; the price of the money does.

A recast is a lump sum applied to principal, after which the servicer re-spreads the smaller balance over the remaining term at your existing rate. The rate never changes; the balance does.

That distinction decides almost everything downstream. A lower rate benefits every dollar of the loan for as long as the loan exists. A lower balance benefits you by exactly the amount you paid down, no more — there is no leverage in a recast, which is why the payment reduction is strictly proportional.

Break-even, side by side

Same $320,000 balance, 6.5%, 27 years remaining, payment $2,098.

The break-even column is the one to read. Five and a quarter years is a long time to wait for a purchase to stop being a loss, and it is longer than the average life of a US mortgage — people refinance, move or sell well before that.

The recast recovers its fee in the first month, because the saving is immediate and the cost is a rounding error against it.

Why the number of points barely moves the payback

Notice that one point, two points and three points all break even at almost the same moment. That is not a coincidence and it is worth understanding, because it changes the question you should be asking.

Point pricing is roughly linear: each point costs one percent of the balance and buys about a quarter of a percent of rate. The monthly saving therefore scales in proportion to the cost, and the ratio — cost divided by monthly saving — stays constant. You cannot buy your way to a faster payback by purchasing more points.

What varies instead is the dollar amount at stake. Three points cost three times as much and save three times as much per month, but the date on which you break even does not really move. So the question is never "how many points should I buy". It is "will I still have this loan in 63 months", and if the answer is uncertain, the answer to the first question does not matter.

Cost per dollar of payment relief

Here is where points look better than most recast advocates admit.

Divide the payment reduction by the cash required. Three points return about 1.57 cents of monthly payment per dollar spent. A $50,000 recast returns about 0.65 cents. Points are roughly two and a half times more efficient at converting cash into a smaller monthly debit.

That efficiency is real, and it has a ceiling. Points are usually capped around three percent of the loan — some lenders allow more, most do not — so the maximum payment relief available through points on this loan is about $151 a month. If the goal is to make the payment comfortably affordable, $151 may not be enough, and no amount of efficient purchasing will get you past the cap.

A recast has no such ceiling beyond the balance itself. It is less efficient per dollar and far more powerful in total, which is why the two products serve different problems rather than competing for the same one.

What survives a refinance

This is the difference that decides the question for anyone who expects to refinance.

Rate buydown points are attached to the loan they were paid on. Refinance, and they are gone. The new loan has a new rate, a new closing, and no memory of the $9,600 you spent buying the old one down. Five years of waiting, then a rate rally and a refinance, and the payback you were counting on never completes.

A recast is attached to the balance, which is a fact about your house rather than about the loan document. When you refinance after a recast, the new loan starts from $270,000 rather than $320,000, because that is what you owe. The $300 fee is not recovered separately — it bought a permanent change to the principal, and the change rides along.

If you expect to refinance within the break-even window, points are a bet against your own future behaviour. That is the single strongest argument in this comparison, and it has nothing to do with the maths of either product.

When points are the right answer

Points win in a specific and fairly narrow case: you are closing on a purchase or a refinance anyway, you intend to keep this loan for a decade or more, and the rate is at a level where a quarter point matters.

In that situation the point purchase is cheap relative to the transaction you are already paying for, the break-even date will pass without you having to do anything, and the rate is locked for the life of the loan. Borrowers who bought points in 2020 and still hold those loans have done very well.

Points are also the only tool available at closing on a purchase. You cannot recast a loan you have not funded yet, and you will not have the lump sum on hand after the down payment. So the choice at closing is really between points and nothing.

Everything else — an existing loan, cash in hand, a payment that needs to fall now — is recast territory.

How to decide

Ask when the money will be needed back. Before five years, points are a poor bet and a recast's near-instant payback wins on every measure except efficiency per dollar.

Ask whether you will refinance. If yes, points are at risk and a recast is not.

Ask how much relief you need. If $150 a month solves the problem, points are cheap and efficient. If you need $330, only a lump sum gets you there, and the recast is the only mechanism that turns a lump sum into a lower required payment.

And if the answer to all three points the same way, do not buy points on a loan you already have. That transaction is called a rate modification or a refinance depending on the servicer, and it costs a multiple of what a recast costs for a fraction of the payment relief.