A recast clause is a contract provision that when triggered, allows a lender to adjust the payments on an adjustable rate mortgage periodically so as it becomes fully amortizing.

The main reason why this term is required by lenders is so that payments can be legitimately adjusted in the event of negative amortization causing balance owning to run wild.

This will prevent consumers from misunderstanding and misinterpreting interest rate fluctuations.

Not to be confused with mortgage recasting where a lump sum payment is made and mortgage payments recalculated at the borrower’s request, a recast clause is often mechanical and triggered automatically when certain conditions are met.