A Short Guide on Home Loan Restructuring vs. Home Loan Refinancing

While loan restructuring and refinancing may sound similar, they are different terms and can impact your ability to pay differently. In this post, we will discuss the similarities and differences between the two processes to help you make an informed decision when it comes to home loan settlement.

What is loan restructuring?

Loan restructuring refers to the process of altering an ongoing loan by changing the existing terms of the contract. Many borrowers choose to restructure their home loans when they struggle financially and find it extremely difficult to pay their loans on time.

A loan restructuring process may involve:

  • Increasing the tenure of loan repayment
  • Changing the frequency of interest payments
  • Reducing the loan EMI

These changes are done to make it easier for the borrower to repay the loan timely. This option is chosen usually when borrowers are on the verge of bankruptcy or they are deemed financially unstable to meet the loan obligations any further.

And yes, loan restructuring may negatively impact your credit score and therefore, it is chosen only as a last resort.

Most banks are willing to restructure loans only if it allows them to recover their debts in full or they have confidence in the intent and capability of the borrower.

What is loan refinancing?

Loan refinancing is a process that involves applying for a new loan with better terms than the previous one and can be used to pay the previous loan. This option is chosen mostly when borrowers find a better option elsewhere.

Refinancing a home loan is a much quicker process than home loan restructuring as it is easy to qualify for refinancing. Unlike home restructuring which impacts your credit score negatively, loan refinancing can have a positive impact on the credit score because the payment history will show that the original loan is paid off.

Is loan refinancing a good idea?

Yes, if you find a home loan with better terms, it is worth refinancing your home loan. You can refinance a home loan for various purposes, such as:

  • To reduce the interest loans on the loan
  • To consolidate the loan
  • To change the loan structure
  • To reduce the overall burden of loan
  • To have a longer tenure for repaying a home loan
  • To borrow an additional amount
  • To reduce the cost of the loan
  • To enjoy better services and features offered by the new lender

In short, while loan restructuring is the process of changing the terms of an ongoing loan, loan refinancing is the process of shifting an ongoing loan from one lender to another. One chooses loan restructuring to avoid loan defaults but loan refinancing is chosen to enjoy better interest rates and loan terms.

Since each option affects your credit score and ability to pay differently, it is best to make your choice accordingly. If you can’t figure out what to do to repay your home loan, connect with home loan settlement experts today.

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