Refinancing

What is debt refinancing?

Debt refinancing is replacing an existing debt with a new debt with better terms and/or circumstances. In other words, debt refinancing is the process of replacing one type of debt with another.

How does refinancing work?

Debt refinancing is frequently used to benefit from fresh funding that provides more advantageous terms and/or conditions. In such a scenario, a person or business will satisfy their existing debt by issuing new loans with better terms or circumstances. The procedure is illustrated below:

Refinancing debt is frequently done for the following reasons:

• To benefit from the new debt's improved interest rate conditions;
• To take on additional debt with longer durations to lower the monthly payback amount;
• To change a debt's interest rate from variable to fixed or vice-versa.

Pros and cons of refinancing

Pro: Possibility of locking in a reduced interest rate.

Con: The savings might not be substantial, depending on your present rates.

Pro: The transition from a 30-year tenure to a 15-year tenure is ideal right now.

Cons: It takes time to refinance.

Pro: The equity you've earned could allow you to access cash.

Con: The cost of refinancing is involved.