Amortization Recast

An amortization recast is the recalculation of a mortgage payment over the remaining amortization period after a lump-sum prepayment reduces the principal balance. Rather than keeping the old payment and letting the schedule finish earlier, the lender spreads the smaller balance across the months that remain, so the payment drops and the original payoff date stays roughly the same.

Two ways to apply a lump sum

Most Canadian mortgages allow a lump-sum payment under the prepayment privilege. The lender then has to apply that money in one of two ways:

• Keep the payment, shorten the schedule. The payment stays where it is, so the amortization period ends sooner and total interest falls the most.
• Recast the payment, keep the schedule. The payment is recalculated on the reduced balance, which lowers the monthly cost but leaves the original payoff date in place.

Note that "recast" is largely American phrasing. Canadian lenders and servicers more often describe the same step as re-amortizing, rebalancing, or adjusting the payment, and the mechanics differ from one institution to the next.

Why a borrower would ask for one

The appeal is cash flow. A borrower who receives a bonus, inheritance, or proceeds from selling another property may want to cut the debt without locking in a higher mandatory payment. Recasting can also help after a job change or a drop in household income, when a smaller required payment provides breathing room. The trade-off is arithmetic: a lower payment means less principal is retired each month, so total interest paid is normally higher than if the same lump sum had been applied with the payment left untouched.

What to confirm before requesting one

• Whether the lender permits a mid-term recast at all, or only at renewal.
• Whether a fee or administration charge applies, and how it is calculated.
• Whether the recast changes the mortgage term, the rate, or remaining prepayment room.
• How the change appears on the amortization schedule afterwards.

Because these rules sit in the mortgage contract rather than in federal lending rules, confirm the current details directly with the lender. A prepayment calculator can show how the two options compare for a given balance.