A borrower pays $60,000 toward a $340,000 balance and asks for a lower payment without refinancing.
Correct Answer
C) A recast: the lender re-amortizes the $280,000 over the remaining term
A recast keeps the rate and the maturity date and recalculates the payment on the reduced balance, which is what a large principal reduction calls for. Other choices: a modification changes the terms themselves and is usually a loss mitigation tool; refinancing is not the only route, which is the point; and forbearance pauses or reduces payments for a borrower in difficulty. Source: Recast versus modification and refinance
Why This Is the Correct Answer
A recast keeps the rate and the maturity date and recalculates the payment on the reduced balance, which is what a large principal reduction calls for. Other choices: a modification changes the terms themselves and is usually a loss mitigation tool; refinancing is not the only route, which is the point; and forbearance pauses or reduces payments for a borrower in difficulty. Source: Recast versus modification and refinance
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