People may consider debt restructuring and debt refinancing one thing. However, they are two separate processes. Refinancing means starting with a new contract; on the other hand, restructuring means modifying the existing contract. One may wonder that this happens similarly with the refinancing mortgage. But it’s not. So, which option is in your favor? The topic Is now a good time to refinance my mortgage or debt restructuring pay emphasis on both processes to help you understand clearly. Plus, you can make a better decision.
What is Debt Restructuring?
At times it’s difficult for the borrowers to repay the loan because of poor financial conditions or when the expenses are too high. Debt restructuring is set into the frame perfectly as it allows the borrowers to restructure the existing loan in a way that makes it easier for them to pay back. For instance, stretching the period of the loan payment lowers the monthly payments. Of course, it will increase the interest price but make it easy for the borrower to make the low monthly payments.
When to go for Restructuring?
Mostly, borrowers go for special circumstances, and the most common situations are when unable to meet debt obligations due to bad financial status. In spite of that, it affects the overall credit score negatively; that’s why it’s considered to be a last-ditch strategy.
A borrower can negotiate with a lender to create a situation where both parties are in a win-win situation. In the end, lenders can’t tolerate insolvency, so they extend the loan duration and receive principal payments with extra interest. On the other hand, customers get time to repay with a lower amount.
What is Debt Refinancing?
The most used option is debt refinancing. Generally, the borrowers apply for a new loan with better terms and conditions to pay down the previous obligations. For instance, a borrower applies for a new yet cheaper loan and pays off the new and existing loan. It’s a quick process in comparison to restructuring, and most of the borrowers are qualified for it. Plus, the credit score remains positive. Furthermore, You can use a free house refinance calculator online to learn about which refinancing option works best for you.
When to go for Debt Refinancing?
Unlike debt restructuring, choosing to refinance contains many reasons. For instance, some do it to organize multiple loans; others want their interest rates to reduce, etc. Borrowers possessing high credit scores are benefited from this option as they can relish the low-interest rates and secure favorable contract terms.
Refinancing enables you to replace the existing loan with another and is often applicable in cases when there is a change in interest rates that have a significant influence on the borrowers to pay the loan quickly with fewer interest payments.
Final Words
Now you have a better idea of what both the loan processes mean and when to use them. However, some differences in terms of contracts can exist as every financial institution may vary in terms of a few policies.
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