Loan refinancing is the process of replacing an existing loan with a new one, typically to secure better terms. This commonly applies to mortgages, auto loans, and student loans. If collateral is involved, it can be transferred to the new loan. Debt restructuring refers to renegotiating delinquent debts under financial distress.
Different types of mortgage refinancing offer various benefits:
| Type | Description |
|---|---|
| Cash-Out Refinance | Refinance with a higher loan amount to receive cash from the equity. |
| FHA Refinance | Refinance an FHA loan to a conventional loan after reaching 20% equity to avoid mortgage insurance premiums. |
| Rate and Term Refinance | Refinance to a lower interest rate or different loan term. |
| ARM Refinance | Refinance an adjustable-rate mortgage (ARM) to a fixed-rate mortgage. |
Refinancing mortgages may incur fees such as application fees, appraisal costs, origination fees, title search, and other document preparation charges.
Refinancing student loans converts them from federal to private loans, losing federal loan benefits. It may be beneficial for private loans, Grad PLUS, or Parent PLUS loans with higher interest rates. Consolidation is different and combines federal loans into one.
Refinancing car loans can extend the loan term, reducing monthly payments but increasing overall interest costs. Beware of "upside-down" loans where the amount owed exceeds the car's value.
Credit card debt can be refinanced by opening a balance transfer card with a low introductory APR or consolidating into a debt consolidation loan.
Refinancing personal loans may secure a lower interest rate or different repayment period if the borrower's financial situation has improved.