Recast Trigger

AAA

DEFINITION of '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.

INVESTOPEDIA EXPLAINS '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.

RELATED TERMS
  1. Unscheduled Recast

    The unscheduled recalculation of the remaining amortization schedule ...
  2. Payment Option ARM

    A monthly adjusting adjustable-rate mortgage (ARM) which allows ...
  3. Scheduled Recast

    A recalculation of the remaining amortization schedule of a mortgage ...
  4. Negative Amortization Limit

    A provision in certain loan contracts that limits the amount ...
  5. Forbearance

    A temporary postponement of mortgage payments.
  6. Mortgage Modification

    A permanent change in a homeowner's home loan terms that makes ...
Related Articles
  1. How Mortgage Refinancing Affects Your ...
    Credit & Loans

    How Mortgage Refinancing Affects Your ...

  2. How Interest Rates Affect The Housing ...
    Economics

    How Interest Rates Affect The Housing ...

  3. Make A Risk-Based Mortgage Decision
    Options & Futures

    Make A Risk-Based Mortgage Decision

  4. Option ARMs: American Dream Or Mortgage ...
    Home & Auto

    Option ARMs: American Dream Or Mortgage ...

comments powered by Disqus
Hot Definitions
  1. Accounts Payable - AP

    An accounting entry that represents an entity's obligation to pay off a short-term debt to its creditors. The accounts payable ...
  2. Ratio Analysis

    Quantitative analysis of information contained in a company’s financial statements. Ratio analysis is based on line items ...
  3. Days Payable Outstanding - DPO

    A company's average payable period. Calculated as: ending accounts payable / (cost of sales/number of days).
  4. Net Sales

    The amount of sales generated by a company after the deduction of returns, allowances for damaged or missing goods and any ...
  5. Over The Counter

    A security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, etc. The phrase "over-the-counter" ...
  6. Earnings Before Interest After Taxes - EBIAT

    A financial measure that is an indicator of a company's operating performance. EBIAT, which is equivalent to after-tax EBIT ...
Trading Center