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Definition of '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.
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Investopedia explains '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.
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