Refinancing

Article summary

Refinancing is the replacement of an existing debt obligation with another debt obligation under a different term and interest rate. The terms and conditions of refinancing may vary widely by country, province, or state, 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. In many industrialized nations, common forms of refinancing include primary residence mortgages and car loans. If the replacement of debt occurs under financial distress, refinancing might be referred to as debt restructuring. A loan (debt) might be refinanced for various reasons: #To take advantage of a better interest rate (a reduced monthly payment or a reduced term) #To consolidate other debt into one loan (a potentially longer/shorter term contingent on interest rate differential and fees) #To reduce the monthly repayment amount (often for a longer term, contingent on interest rate differential and fees) #To reduce or alter risk (for example, switching from a variable-rate to a fixed-rate loan) #To free up cash (often for a longer term, contingent on interest rate differential and fees) Refinancing for reasons 2, 3, and 5 are usually undertaken by borrowers who are in financial difficulty in order to reduce their monthly repayment obligations, with the…

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