Unscheduled Recast

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.

BREAKING DOWN '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.