What is the difference between refinancing and restructuring

The purpose of refinancing is to replace an existing loan with a new loan. Refinancing is carried out to obtain more favourable conditions. For example, lower interest rates or additional funds. Companies with good results and sufficient cash flow also refinance their debt to reduce the financial cost. The first step is to provide the lender with financial information to compare debt to income. The security of the security rights offered will be evaluated.

Real estate is the most common security right, but lenders also accept cash, cars, negotiable securities and so on. Refinancing has its advantages. Direct refinancing without fresh money will provide lower interest rates and payments. Contacto No te quedes con la duda, contacta con nosotros. Estaremos encantados de atenderte y ofrecerte soluciones. Restructuring is usually associated with short-term cash flow stress.

The causes may be cyclical or derive from a lack of financing. Debt refinancing is used on a much broader basis than restructuring, in which a borrower leverages a newly obtained loan with better terms to pay off a previous loan. Borrowers should consider the true cost of bankruptcy before engaging in either form of debt repayment strategy. Article Sources. Investopedia requires writers to use primary sources to support their work.

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Cash-Out Refinance This mortgage-refinancing option—the new mortgage is for a larger amount than the existing loan—lets you convert home equity into cash. Use it with care. What Are the 5 C's of Credit? The five C's of credit character, capacity, capital, collateral, and conditions is a system used by lenders to gauge borrowers' creditworthiness. What Is Accelerated Amortization? Accelerated amortization occurs when a borrower makes extra payments toward their mortgage principal, speeding up the settlement of their debt.

Understanding Rollover Risk Rollover risk is associated with refinancing debt and derivatives trading. If what's being offered seems too good to be true, chances are it probably is.

It makes sense to seek a loan modification before a refinance in some instances. Every lender has their own standards for loan modification. Most require you to apply with financial documentation that proves you need the modification.

Some of these documents include:. Contact your lender and ask how to apply if you think you qualify for a modification. Keep in mind that your lender may refuse your request. You may still qualify for a refinance if that happens to you.

You replace your existing loan with a new mortgage when you refinance. This allows you to change the terms of your loan. You can also use your equity to take cash out of your home. You might want to refinance to:. Unsatisfied with your lender?

Your lender will usually give you the option to lock in your interest rate as well. This protects you against market interest rate movements. After you lock in your rate, your lender underwrites your loan to make sure you qualify to refinance.

With most types of refinances, you must get another appraisal before you can close on your new loan. Once the appraisal and underwriting processes are complete, your lender will give you a Closing Disclosure. The Closing Disclosure tells you more about the terms of your loan and your closing costs. A loan modification is different from a refinance.

When you take a loan modification, you change the terms of your loan directly through your lender. A loan modification can also help you change the terms of your loan if your home loan is underwater. Contact your lender if you think you qualify for a modification. On the other hand, a refinance replaces your existing mortgage with a new loan. You do not have to consolidate or refinance your debt on your own. There are third-party companies and nonprofits that can negotiate the terms of debt consolidating on your behalf.

Now that we have explained the differences between these two debt management tools, we will provide an explanation of how to actually use them in the next two sections. Debt restructuring often requires that you come to an agreement with the entity that you owe your debt s to, and they are not obligated to allow you to restructure your debt with them in any circumstance except for one. Just because they are not normally obligated, however, does not mean that you can not try and come to a restructure agreement with them.

There are five steps that you will need to take in order to restructure your debt, assuming your debtor ultimately decides to work with you:.

This, however, is and should always be an absolute last option for anyone. Refinancing your debt is a little more involved than restructuring your debt, as there are different approaches to refinancing your loans depending on what type s of loan s you have.

However, refinancing your debt is a debt management tool that is more reliable than restructuring your debt, as you do not need to request that your debtor forgive a portion of your debt, or to make other changes to your original debt agreement. In this section we will cover some of the more common types of loans that one might want to refinance:. The process of refinancing your student loans varies slightly based on what kind of student loans you still owe.

There are three main types of student loans, each with their own interest rates and lenders, which can make refinancing your student loans a little less straightforward than refinancing other loan types:. If you have a mix of two or more of the different student loan types, you can always get a loan from a traditional financial lender such as a bank or a credit union , and use those funds to pay off not only your private student loans but also your remaining Federally-provided student loans.