What is Debt Recasting in Australia?

Recasting debt, or loan re-amortisation, means making a large lump-sum payment toward your loan’s principal. After this, your lender recalculates your minimum monthly repayments based on the new, lower balance.

This reduces your required monthly payments, but your interest rate and original loan term stay the same. It can be a good option for Australians who want to improve their monthly cash flow without refinancing.

In this article, we’ll explain what recasting means in Australia, its benefits, and how you can do it successfully.

• Recasting debt lowers your monthly payments after you make a large lump-sum payment to the principal.
• Your interest rate and the original end date of your loan remain unchanged.
• The term "recasting" isn’t commonly used in Australia. Usually, you need to ask your lender to "recalculate your minimum repayments."
• Recasting is different from refinancing, which means getting a new loan, and from offset accounts, which offer more flexibility.

The short answer is no.

"Debt recasting" isn’t a standard product or term at most Australian banks, such as CommBank, Westpac, ANZ, or NAB. However, you can still use this option.

In Australia, this process is usually called "requesting a repayment recalculation" or "re-amortizing your loan."

If you make a lump-sum payment on a variable-rate home loan, most banks will keep your repayments the same by default. This helps you pay off your loan faster.

To get the benefits of recasting, such as lower monthly payments, you need to take action:

Don’t confuse recasting with refinancing. Recasting changes your current loan, while refinancing means replacing it with a new one.

For an Australian borrower with a lump sum, this is the most important decision. Recasting permanently lowers your principal but offers no flexibility. Offset and redraw facilities reduce your interest bill while keeping your money accessible.

The main reason to recast your debt is to make your monthly budget easier to manage.

• Lower Monthly Payments: This is the main benefit. With a lower minimum payment, you have more cash available for other expenses or investments.
• No New Loan Process: You skip the paperwork, credit checks, and fees that come with refinancing.
• Keep Your Interest Rate: This is a major advantage if you have a low fixed interest rate that you don't want to lose by refinancing in a higher-rate environment.

Recasting is not the right choice for everyone.

• Loss of Flexibility: This is the main drawback. Unlike an offset account, once you make the lump-sum payment, you can’t get that money back if you need it later.
• Potential Fees: Although it’s usually cheaper than refinancing, some lenders might charge a small fee to re-amortise your loan.
• It Doesn't Lower Your Rate: If your main issue is a high interest rate, recasting won’t help. In that case, refinancing to a lower rate is a better option.
• Financial Stability: Make sure you won’t need the lump-sum payment for emergencies, since it will be tied up in your property.

Here’s a simple guide to the process:

1. Contact Your Lender. Call your bank or lender before making the payment. Ask, "If I make a large lump-sum payment, can I have my minimum monthly repayments recalculated?" Check if they offer this and if there are any fees.
2. Make the Lump-Sum Payment (if needed). Once you’ve confirmed, transfer the funds to your home loan account. Many lenders require a minimum amount, such as $10,000, for recalculation.
3. Request the Recalculation Formally. This is the key step. After your payment clears, contact your lender again to formally request the re-amortisation. It won’t happen automatically.
4. Monitor Your Payments. Look at your next loan statement to make sure your new, lower minimum payment has been applied correctly.

To show how recasting can help, here are a few examples.

• Example 1: The Family Home The Smith family found themselves struggling with monthly payments after a change in work hours. They had a great 2.1% fixed-rate loan they didn't want to lose. They used a $20,000 inheritance to make a lump-sum payment and then asked their bank to recalculate their repayments. This reduced their monthly payments by over $150, easing their budget strain without refinancing.
• Example 2: The Retiree Couple. Margaret and Paul wanted more cash for travel. After making a $50,000 lump-sum payment from a matured investment, they recast their mortgage. This lowered their monthly payments and gave them extra money each month for their trips.

Deciding whether to recast, refinance, or use an offset account can be complicated. Bheja.ai uses AI insights to help you compare over 100 brands, so you can find the best option for your finances. You’ll also get alerts about changes in your loan, helping you make smarter choices with less effort.