Reamortization

Reamortization and amortization sound rather similar but refer to slightly different things.

Reamortization is sometimes called loan recasting depending on the lender and region. Essentially, reamortization refers to changing the terms of an existing loan, most commonly a mortgage loan.

Borrowers who might want to change the number of monthly payments or the amount paid monthly may look for a reamortization agreement. It can also be used to negotiate fees. It is commonly used by both investors and sometimes owners close to defaulting on a loan.

In many cases, making a lump sum payment against the loan is required to reamoritize the loan’s terms. This requirement tends to be a minimum payment of $5000 for many lenders. This lump sum later reduces the loan’s principal balance and lowers the amount the borrower has to pay back. Many lenders also charge a small service fee to reamortize a loan. This typically is a few hundred dollars.

This is different from amortization which typically refers to the length and terms of repaying a home loan or mortgage.

Reamortization is one of two different ways of reworking an existing home loan or mortgage. The other is refinancing which may help the borrower receive a second loan with better terms than the first as a way to replace it. In certain conditions where interest rates are anticipated to go lower, refinancing may be preferable to reamoritzation even with the additional closing costs. In opposite market conditions, reamortization may be a wiser choice for a borrower.