Unscheduled Recast

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DEFINITION of 'Unscheduled Recast'

The unscheduled recalculation of the remaining amortization schedule of a loan. The recalculation occurs when certain triggers contained in the contractual terms of the loan are reached. This might lead to a substantial increase in the loan's scheduled periodic payments.

INVESTOPEDIA EXPLAINS 'Unscheduled Recast'

Payment option ARMs typically have contractual triggers, which cause an unscheduled recast of the mortgage. These triggers are in the form of a negative amortization limit. Negative amortization on such mortgages is limited to between 110-125% of the loan's original principal balance. For example, if the mortgage's principal balance reaches 110% of the original principal balance due to negative amortization, the loan will recast. This presents a great deal of payment shock risk to the borrower.

RELATED TERMS
  1. Negatively Amortizing Loan

    A loan with a payment structure that allows for a scheduled payment ...
  2. Scheduled Recast

    A recalculation of the remaining amortization schedule of a mortgage ...
  3. Recast Trigger

    A clause in a loan contract that causes an unscheduled recasting ...
  4. Payment Option ARM

    A monthly adjusting adjustable-rate mortgage (ARM) which allows ...
  5. Negative Amortization

    An increase in the principal balance of a loan caused by making ...
  6. Deferred Interest

    The amount of interest that is added to the principal balance ...
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