Refinance is the term used to describe the transfer of a pending debt obligation to another debt obligation with change in terms of repayment of the debt. Refinancing is often undertaken when a borrower wants to change the terms involving the loan. This is mainly opted for when one wants
- reduction in interest rates, - extension of repayment time - to repay another heavier debt - to finance an investment - to secure finances by changing from a variable-rate to a fixed-rate debt - to reduce the number of payments on the loan or - to make payments of a dividend.
Many people also opt for refinancing to help maintain easy flow of cash.
By doing a refinance the borrowers can change the amount of monthly payments that are required to be paid on the debt. This is achieved by reducing the interest rate in the loan or by giving time extension on the period of maturity of the loan. There are some schemes that work by lowering the overall borrowing rate.