The reamortization process is a loan adjustment method where your lender recalculates your monthly payments based on the current outstanding principal balance, remaining loan term, and original interest rate. Unlike refinancing, reamortization does not replace your existing loan but adjusts your payment schedule to better match your new balance.
How Reamortization Works
After making a significant lump-sum payment toward your loan principal or following a period of payment suspension such as forbearance, your lender can recalculate your payments. This recalculation spreads your remaining balance over the original loan term, lowering your monthly payments without changing your interest rate or loan end date.
When Reamortization is Used
- Large Lump-Sum Payments: If you pay down a substantial amount of principal, reamortization lowers your monthly payment based on the reduced balance.
- Post-Forbearance Reamortization: Following a payment pause, accrued interest often capitalizes, increasing your loan balance. Reamortization then adjusts payments according to the new balance, which can raise monthly installments.
Reamortization vs. Refinancing
- Reamortization (Loan Recasting): Involves recalculating payments on your existing loan without changing the interest rate or lender. It typically requires a lump-sum payment and minimal fees.
- Refinancing: Closes your current loan and replaces it with a new one, often with a new interest rate, loan term, and lender. Refinancing involves credit checks, closing costs, and other loan qualification steps.
Here’s a comparison:
| Feature | Reamortization (Loan Recasting) | Refinancing |
|---|---|---|
| Loan | Existing loan adjusted | New loan obtained |
| Interest Rate | Same rate maintained | New rate (potentially lower) |
| Lender | Current lender | Can switch lenders |
| Application Process | Simple, usually no credit check | Full application with credit review |
| Closing Costs | Minimal fees ($150-$500) | Significant costs (2-5% of loan amount) |
| Best For | Reducing monthly payment after lump sum | Lowering rate or changing loan terms |
Is Reamortization Right for You?
Consider reamortization if you want to reduce your monthly payments without refinancing. It’s ideal if you have a low interest rate you want to keep, and you prefer a quicker, less expensive alternative. However, it may not be ideal if your goal is to pay off your loan faster or if your lender does not permit it.
How to Request Reamortization
Contact your lender to verify if your loan is eligible. They will provide requirements, including minimum lump-sum payment amounts and any fees. After making the payment, submit a formal request to have your loan reamortized.
Additional Resources
- Learn more about Refinancing Process to understand alternative options.
- Understand the details of Loan Recasting as a term commonly used interchangeably with reamortization.
- For information on payment suspensions, see Forbearance Agreement guidance.
Frequently Asked Questions
Does reamortization affect my credit score?
No. Since reamortization is an adjustment to your existing loan, it does not involve a credit inquiry.
Is reamortization the same as loan recasting?
Yes. Both terms refer to recalculating your loan payments based on your new principal balance without changing loan terms.
Can all loans be reamortized?
Not all loans qualify. Government-backed loans like FHA and VA often do not allow reamortization. Always check with your lender.
What are the costs associated with reamortization?
Fees are generally low, often an administrative charge between $150 and $500, which is much less than refinancing costs.
For further authoritative details, visit the Consumer Financial Protection Bureau.
