What is a refinance risk?
Risk for refinancing is the degree of risk that the required result of a particular financial transaction will not pass. For investors acquiring securities supported by a mortgage, it is the risk that mortgages that support securities will be paid soon, which will lead to a lower amount of interest income. The debtor also experiences a certain degree of risk refinancing in terms of the ability to refinance a loan for a more competitive rate in the future in the future. In both examples, the refinancing risk has the inability to achieve the required returns when the transaction was first performed. Although there is a certain post for movements in loans that carry floating or adjustable interest rates, most mortgages are expected to be paid according to conditions and will not soon retire. When mortgages holders are able to refinance mortgages at lower rates, which reduces the actual yield that investors receive. Confidential investors understand this type of refinancing risk and will often consider how ČAOne hundred of this type of event has occurred in the past before they decide to purchase an investment.
For individuals who receive mortgages in a period when their loan is not enough to obtain the lowest possible interest rates, the hope is that the loan can be refinanced as soon as these credit evaluation improves. In this situation, the risk of refinancing focuses on whether the debtor's credit rating is increasing sufficiently to control a lower interest rate. If the chances of improving the credit rating are small, then there is a refinance risk that the debtor assumes this initial mortgage, relatively high. For those who have excellent prospects for the benefits of the next few years, the risk is considered low.
As with most investment opportunities, the evaluation of the risk of refinancing requires, as it concerns mortgages, requires careful checks by the investor. For those who are considering buyingSecurity supported by a mortgage is necessary to investigate the nature of mortgages that support the investment, including the potential for premature payouts, to decide whether the level of risk is acceptable. For homeowners, it is realistic about the chances of repairing damaged credit ratings necessary to minimize the risk that you will not be able to refinance an existing mortgage later, and get a better interest rate.