Editing Refinancing (section)

== Risks ==
Some fixed-term loans have [[penalty clause]]s ("[[call provisions]]") that are triggered by an early repayment of the loan, in part or in full, as well as "closing" fees. There will also be [[transaction fee]]s on the refinancing. These fees must be calculated before embarking on a loan refinancing, as they can wipe out any savings generated through refinancing. Penalty clauses are only applicable to loans paid off prior to maturity. If a loan is paid off upon [[Maturity (finance)|maturity]] it is a new financing, not a refinancing, and all terms of the prior obligation terminate when the new financing funds pay off the prior debt.

If the refinanced loan has the same interest rate as previously, but a longer term, it will result in a larger total interest [[cost]] over the life of the loan, and will result in the borrower remaining in debt for many more years. Typically, a refinanced loan will have a lower interest rate. This lower rate, combined with the new, longer term remaining on the loan, will lower payments.

A borrower should calculate the total cost of a new loan compared to the existing loan. The new loan cost will include the closing costs, prepayment penalties (if any) and the interest paid over the life of the new loan. This should be lower than the remaining interest that will be paid on the existing loan to see if it makes financial sense to refinance.

In some American jurisdictions, varying by American state, refinanced mortgage loans are considered [[recourse debt]], meaning that the borrower is liable in case of default, while un-refinanced mortgages are [[non-recourse debt]].