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Refinancing

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Katt | 30 Sep 2017, 11:05 PM Agree 0
Refinancing refers to the replacement of an existing debt obligation with another debt obligation under different terms in short; it is borrowing to pay off what you previously borrowed. The terms and conditions of refinancing may vary depending on the country or province, and also based on several economic factors such as, inherent risk, projected risk, political stability of a nation, currency stability, banking regulations, borrower's credit worthiness, and credit rating of a nation. The most common, in many industrialized nations, are refinancing of primary residency mortgage.

If the replacement of debt occurs under financial distress, refinancing might be referred to as debt restructuring.



Various reasons why loans (debts) are refinanced:

1. To take advantage of a better interest rate (a reduced monthly payment or a reduced term)

2. To consolidate other debt(s) into one loan (a potentially longer/shorter term contingent on interest rate differential and fees)

3. To reduce the monthly repayment amount (often for a longer term, contingent on interest rate differential and fees)

4. To reduce or alter risk (e.g. switching from a variable-rate to a fixed-rate loan) see Loans

5. To free up cash (often for a longer term, contingent on interest rate differential and fees)
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