What is 'Mortgage Recast'
A feature in some types of mortgages where the remaining scheduled principal and interest payments are recalculated based on a new amortization schedule. Some mortgages may allow for a recast in order to help a financially distressed borrower, in which case the interest rate might be reduced and/or the remaining term of the mortgage extended. Most often, a recast is associated with a negative amortization mortgage which must recast at some point so that the mortgage will be paid off by the end of its scheduled term.
BREAKING DOWN 'Mortgage Recast'
Payment option ARMs are popular negative amortization mortgages with recast features. Most payment option ARM's have a scheduled recast in month 61. Additionally, they have triggers that might cause an unscheduled recast to occur if a negative amortization limit is reached. For example, if the principal balance of the loan reaches a set limit through negative amortization, a recasting of the mortgage is triggered.