What Is a Mortgage Recast?

The mortgage recast is a technique that is used in order to recalculate the amortization schedule of a mortgage. Here are the basics of the mortgage recast and how it works.

Mortgage Recast

With a mortgage recast, a mortgage lender is going to re-amortize a loan based on the current balance of the loan and the time remaining on the loan term. Many times, this technique is used in order to help borrowers that have fallen into tough financial times. 

Option ARM

The mortgage recast is also used commonly with option ARM mortgages. The option ARM mortgage is also referred to as the "pick-a-payment" mortgage. With this type of mortgage, you can choose to make a full mortgage payment, an interest-only mortgage payment, or a minimum payment that is actually less than the interest that is accruing on the loan. If you continually choose the minimum payment, the balance of your loan is going to increase every month. At some point, the lender is going to have to recast the mortgage in order to get the loan paid off by the maturity date. At that point, the mortgage is going to turn into a fixed payment mortgage and the payment will be larger than before.