Adjustable rate mortgage or (ARM) as it is otherwise known is another type of loan, and if a homeowner has been given this kind of loan by their bank, they could have what is called a “Re-cast” applied to the ARM, what this then does is keeps the payment amount the same, but lengthens the amount of time the homeowner has to repay back the entire loan.
The following is an example of a re-cast.
This homeowner has an ARM at 5.5%, and on the date of adjustment the rate goes up to 7.5%. Now depending on the size of the loan, the difference between the two rates could be hundreds of dollars each month. What this increase in rates does is makes the repayment amount increase and if the homeowner has a drop in income this will cause hardship for them. Therefore, in such a case the bank may well “fix” the rate so it stays the same for 2 to 4 years, or they may take the rate and convert it into a “fixed rate” so it remains the same.
However, modifications such as this will generally be dependant, on whether the homeowner has had a good payment history before they make the adjustment.
Although, this type of loan modification can be implemented by the bank, whether they choose to offer the struggling homeowner this option or not is entirely at the lenders discretion. In many cases the lender will not make any offer of this or any other kind, because they do not end up making any money, whereas with normal mortgage repayments they do.
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