All Forum Posts by: Scott Benton

@Luka Milicevic — I have also heard of it referred to by both terms.

I suppose it depends on what kind of money you want. In the case of recasting, I was able to convert cash (or potential portfolio income as you suggest the money is used for) into passive income. If I convert this cash into portfolio income instead of paying down my mortgage, I will pay (what) 20–24% on the gains every year, and for myself I know i would not be utilizing that money to replace a job, but rather would focus on reinvesting it back into the fund. That does not get me out of the rat race as much as it allows me to log into my brokerage account and watch those numbers grow, which is fun but there is no current utility for that revenue, and if I do use that money, I don't get to use the whole amount. I would pay roughly one quarter of it to the government straight out. However, if I convert that money into passive income instead by recasting and paying down my mortgage, then effectively I pay 0% in taxes on those "gains" or increased rentals I keep and utilize. Passive income is considered 0% money since effectively I don't pay taxes on it from the tax benefits I receive with rentals. Rental money vs. mutual fund returns is not an apple-to-apple comparison. In all cases and assuming the amount is the same for both sources, I would much rather have money coming in where I can use 100% of it versus 75% of it. If I make $1,000 in rentals, because passive income is taxed at 0%, I get to spend the full $1,000. If I take out $1,000 from my portfolio from gains (which I am unlikely to do), I get to spend about $750 and must send about $250 to the government.

I get much less purchasing power with portfolio income such as what I would get from mutual fund gains as you suggest.

Also, if you go by what John Bogle says about mutuals: “Do you really want to invest in a system where you put up 100 percent of the capital, you, the mutual fund shareholder, you take 100 percent of the risk, and you get 30 percent of the return?”, then that makes mutual fund investing even less attractive for me. Not only do I lose out on 70% of the potential gains however much the market goes up, but on top of that, I now have to pay about 25% to the government for the portion I do keep.

Looking at recasting as an option and growing my passive sources of income which I prefer of the there incomes (W-2 being the third), I would lean more in that direction myself. Sounds like that idea doesn't work for you and that you would rather focus on rates of return on mutual funds and paying more in taxes over passive. I respect your decision and the direction you take based on those fundamentals. I simply chose differently. There is no right answer for everyone, but this has worked wonderfully for me and might work well for others too.

I suppose it depends on what kind of money you want. In the case of recasting, I was able to convert cash (or potential portfolio income as you suggest the money is used for) into passive income. If I convert this cash into portfolio income instead of paying down my mortgage, I will pay (what) 20–24% on the gains every year, and for myself I know i would not be utilizing that money to replace a job, but rather would focus on reinvesting it back into the fund. That does not get me out of the rat race as much as it allows me to log into my brokerage account and watch those numbers grow, which is fun but there is no current utility for that revenue, and if I do use that money, I don't get to use the whole amount. I would pay roughly one quarter of it to the government straight out. However, if I convert that money into passive income instead by recasting and paying down my mortgage, then effectively I pay 0% in taxes on those "gains" or increased rentals I keep and utilize. Passive income is considered 0% money since effectively I don't pay taxes on it from the tax benefits I receive with rentals. Rental money vs. mutual fund returns is not an apple-to-apple comparison. In all cases and assuming the amount is the same for both sources, I would much rather have money coming in where I can use 100% of it versus 75% of it. If I make $1,000 in rentals, because passive income is taxed at 0%, I get to spend the full $1,000. If I take out $1,000 from my portfolio from gains (which I am unlikely to do), I get to spend about $7,500 and must send about $2,500 to the government.

I get much less purchasing power with portfolio income such as what I would get from mutual fund gains as you suggest. 

Also, if you go by what John Bogle says about mutuals: “Do you really want to invest in a system where you put up 100 percent of the capital, you, the mutual fund shareholder, you take 100 percent of the risk, and you get 30 percent of the return?”, then that makes mutual fund investing even less attractive for me. Not only do I lose out on 70% of the potential gains however much the market goes up, but on top of that, I now have to pay about 25% to the government for the portion I do keep.

Looking at recasting as an option and growing my passive sources of income which I prefer of the there incomes (W-2 being the third), I would lean more in that direction myself. Sounds like that idea doesn't work for you and that you would rather focus on rates of return on mutual funds and paying more in taxes over passive. I respect your decision and the direction you take based on those fundamentals. I simply chose differently. There is no right answer for everyone, but this has worked wonderfully for me and might work well for others too. 

Thanks, Basit. After doing a refinance and comparing the overall experience to the first recast I did, and with the goal of increasing cash flow, this was much easier and helped snowball the debt I had way down. As I mentioned, I did not want to restart my payment clock and set it back to the 30 year mark again. I was not eager to give up the five or ten years of payments I had already made and would not have had an option for a new conventional fixed rate loan at the time. I agree a recast is not for everyone and does not make sense financially on many levels, especially when you start comparing interest rates and return and liquidity and so on. All of which I did not personally care about. I loved getting higher amounts of cash flow from passive income sources regardless of the calculations or whether they made sense or not numerically, and found I slept pretty well at night the more recasting I did. Since it is not well-known, I wrote the post to draw attention to it as an option that might work for others as well as it had worked for me. Thank for crunching the numbers between recasting and refinancing. I enjoy looking at these from many different angles and learning that not all banks treat these the same as my bank treated my loan payments. 

Interesting. I did not experience any bank fees on the several recasts I did, and was told there were no minimums. I assumed that would be the case for all banks, since this was with one of the largest. My last recast I believe was in 2018 or 2019. Not sure if the policies have been changed since then. Still, for me if I had to pay $150 or $250 for the recast, I would still do it in a heartbeat. 

That's absolutely awesome. From reading your explanation, my first thought was that, yes, I wonder if there would be no $500 processing fee if you initiate the recast. On the other hand, I wonder if you could ask them to wave the $500 fee to recast and see if they'll go for it. 

Also, I would imagine even if you did pay the $500, it would be an amount you would be able to write off during tax reporting. I would ask my accountant if that would be the case before moving forward with it. 

Interesting. I have done a recast several times and did not once have a processing fee to pay. I wonder if your $500 processing fee was originally written into the mortgage or not or if that's bank policy for your particular mortgage holder. I was recently told by a mortgage broker that there are no loans written these days, or have been for a while, that carry a pre-payment penalty which this possibly sounds like? 

Thanks, Bill. For my post, I was addressing the ability to instantly increase your cash flow for free over refinancing at cost if that is important to you. Sounds like this idea would probably not be the best move for you right now. Cash flow is more important to me at the moment in a tricky economy over investing in securities or, for instance, putting money into the VTSAK or another index fund when the Fed is printing money like drunken sailors, and also because of the higher taxes you pay with portfolio income on the gains over passive rentals. You certainly can do many things with your money, I definitely agree with you and love all the options you bring up, but like I said, if you want higher cash flow on your investment property immediately (or lower payments on the mortgage on your primary residence if you already have paid down a portion or plan to), then recasting is an excellent vehicle to accomplish that and one that most people I find don't know about to consider looking at. I wanted to shine a light on something I don't hear a whole lot about. Thanks for your well thought out comment and the discussion about generating higher returns. 

Sounds good. If you've been making even small payments, it's worth a shot to see if the bank will re-amortize the loan and bring the payment down even slightly to see what a valuable tool this can be purely for cash flow purposes if nothing else.