Article by Peter Harper
A mortgage recast is more like mortgage modification but it mainly involves re-amortization of your home loan. The need for mortgage recast in general comes up in case of three situations. One is when you would want to pay down the principal and get the home loan amortized. The second situation is when a homeowner is in financial hardship and thus may want to extend the term of the home loan. Another situation is when negative amortization happens on a home loan, recast is done.
Why is recasting on mortgage done?
Mortgage recasting is done in order to lower the monthly payment on your mortgage. Thus, it is more like mortgage modification as the loan term gets changed and the payment on the mortgage is reduced. Through mortgage recasting the cost and the hassles of refinancing your mortgage gets reduced. There are many such lenders who offer the homeowners the chance which can help them in to lowering their monthly payments through recasting or re-amortization.
Amortization is when the payments against the mortgage are made and when the loan amount reduces as a result of this. Thus, negative amortization is just the opposite of this where the loan amount grows as a result of less than minimum payments made by the borrower.
The amortized loan lowers the fixed amount of money that you are required to pay each month against the home loan so that at the end of the mortgage, the principal amount gets paid off. Thus, you can use a mortgage calculator in order to understand fully the amortization schedule which shows as to how the monthly payments are broken down into the payment towards the interest and the payment against the principal amount borrowed.
Typically the homeowners do not recast the home mortgage under a situation where they make additional payments against the principal. Rather the loan gets foreshortened and this is because additional payments towards the principal reduce the outstanding balance of the loan, along with the expense on the monthly interest. In this case as the monthly payment do not change, so the loan gets paid off faster.
However, sometimes the main idea of the homeowners, in making the additional principal payments is not mainly to reduce the loan but to lower the monthly payments on the mortgage. In such a situation the home loan is required to be recast. The lender in case of recast is required to base the payments against the home loan as per the new term, thereby the lower balance of the loan and also the remaining home loan term.
But again, not all of the mortgage lenders may offer their customers the provision to recast the home mortgage. The main lenders in many cases sell off the loans and these get originated to investors. The investors in general are not much interested in providing this level of provisions and flexibility to the borrowers and so these home loans may not have the recast option. However, it is always better to talk to your lender about the mortgage recast and if you can get such a provision.
Other than this in case of the negative amortization loans or also as known as the pick and pay loan, you may be able to recast the loan. Though these loans offer you various advantage and various low payment options, this is quite a troublesome kind of loan. This is because the loan amount grows and at a point of time it becomes really tough for you to make the payments against the home loan. So, in such cases the loans can be recast and in this case the loan payments grow higher in order to lower the principal amount which you had borrowed.