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. |
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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. |
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