Refinancing
Refinancing involves replacing an existing loan with a new one under different terms. The most common type of refinancing is for home mortgages. If a borrower is facing financial difficulties, refinancing can sometimes be classified as debt restructuring.
Common reasons for refinancing include:
- Securing a lower interest rate, which can reduce monthly payments or shorten the loan term
- Consolidating multiple debts into one loan, which may extend the repayment period
- Reducing monthly payments by extending the loan term
- Switching from a variable-rate to a fixed-rate loan to manage risk
- Accessing home equity for cash needs, typically extending the loan term