This process involves adjusting the remaining balance and the term of the loan to establish a new monthly payment amount. When a loan is reamortized, the lender takes the outstanding balance and spreads it over the remaining term, which may lower the monthly payments or adjust them to pay off the loan more quickly, depending on the terms agreed upon. Reamortization can also occur when borrowers want to switch from an adjustable-rate mortgage (ARM) to a fixed-rate mortgage.
Reamortize Example
For example, if a homeowner has a $200,000 mortgage with 20 years remaining and has made an extra payment of $10,000 toward the principal, reamortizing the loan would involve recalculating the monthly payments based on the new balance of $190,000 over the remaining term, potentially resulting in lower monthly payments.