The point in time at which the rate of a mortgage, and hence interest payment, will change (reset to a different rate). The frequency of reset affects interest payment over the term of a loan. A mortgage reset could be part of a balloon mortgage where a borrower has an option to pay less interest in the first years or make interest payments only (without repayment of principal). However, at a specific point, either the full amount of the mortgage becomes due or the rate is “upwardly” reset.
The reset may also lead to an extension of the time of repayment, but interest rate will be changed to reflect the prevailing rate at the time. Mortgage reset can dramatically increase monthly payments, and the mortgage reset may contribute to more foreclosure rates as borrowers become unable to make larger monthly payments over time.
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