Question

What are the primary considerations that should be made when refinancing? in at least 3 – 4 sentences.

Answer 1

a) Refinancing can be done if the new lender or the investor is offering a lower rate of interest. However, the net benefit must be ascertained after considering transaction expenses, prepayment penalty, and any other ancillary expenses.

b) New terms, conditions, and covenants must be favorable to the borrower. This must be considered along with the above point (a).

c) The borrower may also evaluate implications on the current relationship with the existing lender

d) Reputation of the new lender or investor, and how it may be perceived by various stakeholders in general

Hence, in case of refinancing, the borrower must examine the overall cost and benefits based on both qualitative and quantitative factors.