What is 'Recast Trigger'
A clause in a loan contract that causes an unscheduled recasting of the loan's remaining amortization schedule if and when certain conditions are met. A recast trigger is most often associated with negative amortization mortgages, which typically have a trigger that recasts the remaining amortization schedule when the mortgage's outstanding principal balance reaches a certain percentage - usually 110-125% of the mortgage's original principal balance.
BREAKING DOWN 'Recast Trigger'
Borrowers need to be aware of and understand the risks that a recast trigger presents. When a payment option ARM hits its negative amortization limit, triggering an unscheduled recasting of the remaining amortization schedule, the monthly payment is likely to increase substantially, resulting in payment shock. Even a modest rise in interest rates, depending on the level of the negative amortization limit of the mortgage, can cause an unscheduled recast several months before month 61, which is typically the first scheduled recast on a payment option ARM.