Refinancing involves refinancing something.
Refinancing is a term that is not included in the dictionary of the Royal Spanish Academy ( RAE ). The concept derives from financing , which is the action and result of financing (resolving an expense, granting the capital needed for something). That verb, in turn, we can establish that it derives from the French financier , which can be translated as “defray a debt” and that it emanates from the Latin finis , synonymous with “end” .
Knowing the meaning of financing and finance, and from the inclusion of the prefix re- , we can affirm that refinancing consists of refinancing . The notion is usually used specifically when changes are introduced in the conditions of financing already granted .
What does refinancing consist of?
Typically, refinancing consists of a reduction in the installment paid and a cut in the interest rate , allowing the debtor to pay the loan over a longer period of time. The objective is to adapt the repayment of the credit to the real income of the person who must pay off the debt so that it does not become unpayable.
The debtor, therefore, requests refinancing when he needs to pay less in each installment or when he wants to reduce the interest he will pay at the end of the loan . For the creditor, accepting refinancing is a way to facilitate the payment of the loan to the debtor, reducing the risk of default . In other words: the creditor agrees to receive less money than agreed in the original financing since he prefers to ensure that income and not have the debtor stop paying.
In some cases, refinancing even includes a grace period in which the debtor does not have the obligation to pay the debt installment, so that they can organize their finances or generate resources.
Refinancing of mortgage loans is common.
Your link with mortgage loans
In the field of mortgages , refinancing is most frequently discussed. Specifically, it is established that people who have a mortgage loan should seriously consider refinancing it for several important reasons:
- To adjust the term of the mortgage, either to increase or reduce it.
- To reduce the interest rate.
- To change from a variable to a fixed interest rate.
- To get cash from the equity built in the house itself.
- To get a better variable rate, with much more appropriate and favorable terms and terms.
However, experts in the field agree that, before requesting refinancing, it is necessary to carefully analyze the situation. Therefore, you have to carefully study the moment, the mortgage credit you have, the moment the market is experiencing and, of course, do it at the hands of professionals and advisors who are trained and qualified in this regard.
Likewise, it is established that when you want to go to the bank to request a refinancing of the credit, you must do so by providing both the reasons that lead to requesting it as well as a specific plan, in which it is clear how you plan to face the payment and the objective that has been fixed about it.