When we first bought our love potion starter collection from Madame Destinia, she warned us that we’d have to repeat the love spell we’re casting once a month for six months for it to really take. We definitely want it to take, so we set ourselves a little reminder on our phone: on the first of every month, we’ve got a scheduled recast of our love spell. That girl from the bus stop will never know what hit her.
Of course, in the mortgage world, the term “scheduled recast” means something totally different. And, surprise, it has nothing to do with spells and love potions.
In the mortgage world, a “scheduled recast” is when our mortgage payments automatically adjust according to a predetermined adjustment schedule. We’ll see this most often in the option ARM world, where we can pay different amounts toward the mortgage loan every month.
Like...let’s say we just secured a 30-year option ARM mortgage with an introductory interest rate of 2.79%. Every month, we can make the full principal-plus-interest payment of $1,000, we can make an interest-only payment, or we can make an even smaller minimum payment. After 24 months, as per our loan agreement, we’ll hit our first scheduled recast date. This means our lender is going to look at how much we owe, how much we’ve paid off, and our payment history, and they’re going to redo our payment schedule and amount based on those numbers. If we haven’t been making the full payment every month, there’s a good chance our payment amount could go up, in addition to our interest rate increasing.
Scheduled recasts are outlined in our mortgage docs, so if we are thinking of going the option ARM route, we should pay close attention to when they are, and what the recast will mean for us.
Related or Semi-related Video
Finance: What is Adjustable-Rate Mortgag...17 Views
Finance allah shmoop What is adjustable rate mortgage or arm
Well here's an arm and here's a leg and that's
What Renting the money to buy a home costs you
Yeah Okay Eight r m stands for adjustable rate mortgage
The rate well that's The interest cost of the money
or the cost of renting that money to buy the
home Well the rate isn't it fixed in this case
like five point seven percent for thirty years Where you
know in advance that your monthly payments going to be
nine hundred forty three bucks a month or whatever it
is that would be a fixed mortgage a fixed number
You can count on it for all three hundred sixty
payments And then the house is all yours So that's
fixed then what's adjustable like yes the interest rate changes
But how does it change Well in a standard arm
there is some global standard on which the rates are
often price like lie bore the london interbank borrowing offering
rate It's one of the key things that price is
the cost of renting money all around the world with
the actual rate of libel or is generally reserved for
banks like super cheap cost of renting money to banks
who are very likely to pay back the money with
no hassle that rate is more or less what banks
pay for running the money along with blue chip customers
in real life The banks then mark up a premium
on top of the rate that they're paying to rent
the money to themselves And then they resell or re
rent that money teo their prized customers So the pricing
of bank my views in renting money to joe six
pack could be something like lie boer plus three percent
or three hundred basis points So if libel or is
it didn't say two and a half percent today the
adjustable rate might be five and a half percent and
all that's great honor given alone It might mean that
for a while you're paying seven hundred twelve dollars a
month for your house payment wonderfully cheap and in fact
banks market these low rates initially to help people be
able to afford tto by that new home and live
of the dream You know the american dream usually with
an arm there's a teaser rate that starts really low
Like at live or live or plus ten basis points
or something like ridiculously cheap for six months or a
year something like that Then it has an incremental set
of step ups in interest costs and venit adjust with
the markets usually upward maybe upward by a lot Remember
there's a reason it's called a teaser rate but then
if we get inflation or a you know just bank
nervousness for there are weird effects from brexit or the
volume of transactions going through london or something weird happens
Well then the liquidity drops and interest rates rise So
now lie board goes up and up and up to
four and a half percent and wealth contractually in your
mortgage paperwork you have to pay live or plus three
hundred basis points no matter what So now that's seven
and a half percent interest on the dough you borrowed
and well we're that toe happen It's likely that your
monthly payment has skyrocketed from seven hundred twelve dollars a
month is something more like twelve hundred dollars a month
or more Can you handle that big of a payment
Well have you done a fixed rate loan at nine
Hundred forty three dollars a month Well you'd still be
paying on that number but you rolled the dice with
an arm and now you owe big bills There go
that arm and a leg thing we warned you about 00:03:26.033 --> [endTime] eh
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