Definition of Refinancing risk:
Refinancing risk refers to the possibility that an individual or company would not be able to replace a debt obligation with new debt at a critical time for the borrower. Your level of refinancing risk is strongly tied to your credit rating. To avoid refinancing risk, lenders place great value on a borrower's history of paying down his or her debt reliably. However, external factors—such as interest rate movements and the overall condition of the credit market—often play an even larger role in a borrower's ability to refinance.
Refinancing—replacing debt that is coming due with new debt—is common for both businesses and individuals. A major reason to refinance is to save money on interest costs. So typically, you need to refinance into a loan with an interest rate that is lower than your existing rate. The risk is that you might not be able to find such a loan when you need it.
Probability that a bank (1) will not be able to refinance maturing deposits, liabilities, or (2) if they are refinanced, the maturity and interest rate of the financing will adversely affect net interest income.
How to use Refinancing risk in a sentence?
- Any company or individual can experience refinancing risk, either because their own credit quality has deteriorated, or as a result of market conditions.
- Because most investments involve a degree of risk, it is wise to avoid refinancing if it's unrealistic for you to assume the financial risk.
- Refinancing risk refers to the possibility that a borrower will not be able to replace existing debt with new debt.
Meaning of Refinancing risk & Refinancing risk Definition