What is Refinancing?

Refinancing is the replacement of an existing debt with a new debt that has better terms. The most common consumer refinancing is for a home mortgage. Sometimes refinancing is referred to as debt restructuring, particularly when the debt is refinanced while the owner is under financial distress.

Refinancing maybe undertaken to extend the payment term, to reduce the interest rates, to pay-off other debts, to make new investments or to reduce the risks. For instance, moving a variable rate of interest to a higher but fixed rate of interest.

Many people resort to refinancing when interest rates are low or to seek certain tax advantages. The most important benefit to come out of refinancing is to improve overall cash flow.