Re-Amortizing A Loan

What does "re-amortizing" a loan mean?

2 Answers

Re-amortization is the recalculation of a loan's principle and interest payment with out changing the interest rate or term of the loan.  In mortgages it is done at the time of a large principle reduction payment.

It is allowed by some servicers, but not all.  Typically there is a small, one time "modification" fee of $200-$300 charged to the borrower.  Generally, there is minimum principle payment amount of $10,000 to $15,000.  The servicer may also limit the number of times they will re-amortize in a given period or over the life of the loan.  Once complete the borrower will have a lower payment at the same interest rate, maturing on the same date.  In contrast, making a large principle payment without re-amortizing will keep the payment amount the same and shorten the loan term.

Re-amortization is usually used when borrwoer sells other real estate and wants to apply those proceeds to lower their monthly payment.  It is also used by borrowers that want to use annual employment bonuses to lower their mortgage payments.

 

Usually this is a reference to re-calculating the principal and interest that will be due each month in order to pay off the loan in the allotted time. Generally, it is the result of a material change in the loan program or size.

The phrase might come up when someone makes a significant extra payment to reduce the principal balance (the amount owed), and  her or she is interested in seeing the payments drop immediately (rather than just have the loan end sooner). He or she may ask the lender to "re-amortize" the loan - to recast or recalculate the payments so that less is owed each month in order to pay off the loan in the same timeline as originally specified.

It may also come up in the case of an adjustable rate loan, where the lender or servicer (the one collecting the payments) must recalculate the payment and the principal/interest components of the payment each time the rate changes with the market.