Refinancing
The financial term refinancing covers the method of replacing an existing loan with a different loan having different interest rate expiration date and conditions.
The most common use of refinancing a loan nowday is for a real estate mortgage contract. Usually the primarily aim of a refinancing deal is the reduction of interest rates and changing the amount of monthly payments by extending the payment period. As in some mortgage deals the amount of monthly payments might be a subject of changes in different market indices, this deal is also used to reduce the risks of the possible changes in interest rates by changing a variable interest rate mortgage with a fixed interest rate contract. Usually companies use refinancing to raise cash for an investment or divedend payments.
After going trough these usual uses of refinancing deals we can appoint that the aim of such a financial operation is the reduction of overall costs of borrowing. Besides mortgage payments an other use of refinancing is for clearing high interest rate credit card debt with a lower interest rate bank loan. In some countries this deal has a tax-exempt option as it is a help to improve the credit rating of people and therefore improve their financial situation.