Renegotiated Loan

AAA

DEFINITION of 'Renegotiated Loan'

The result of an agreement between a borrower and a lender to modify a loan by taking a loan that a customer was having difficulty paying and turning it into a loan that the customer can pay. The loan may be modified by lowering the interest rate, changing it from an adjustable-rate loan to a fixed-rate loan, lengthening the repayment period or forbearing principal.

A renegotiated loan can benefit both borrowers and lenders. The borrower is able to maintain his or her credit rating, avoid bankruptcy and retain use of the asset that is tied to the loan (e.g., a house). The lender, while it may see less benefit (i.e., less interest income) from a renegotiated loan, retains the customer's business and may have better profits than it would by allowing the borrower to default.

INVESTOPEDIA EXPLAINS 'Renegotiated Loan'

Renegotiated loans, also called loan modifications, were popular in the aftermath of the 2007 housing-bubble burst among homeowners who found themselves unable to pay their mortgages. A bank will not always agree to renegotiate a loan. Sometimes the bank will see a greater financial benefit from letting the loan default and getting the nonperforming loan off its books than from modifying the loan.

RELATED TERMS
  1. Forbearance

    A temporary postponement of mortgage payments.
  2. Nonperforming Loan - NPL

    A sum of borrowed money upon which the debtor has not made his ...
  3. Principal

    1. The amount borrowed or the amount still owed on a loan, separate ...
  4. Housing Bubble

    A run-up in housing prices fueled by demand, speculation and ...
  5. Loan

    The act of giving money, property or other material goods to ...
  6. Loan Modification

    A modification to an existing loan made by a lender in response ...
Related Articles
  1. Options & Futures

    Things To Know About The Home Modification Plan

    This program allows FHA borrowers to reduce monthly mortgage payments through negotiation with lenders.
  2. Entrepreneurship

    The New Mortgage Business: More Than Just Loans

    Many mortgage brokers adapted to the post-subprime environment by becoming loan modification specialists.
  3. Options & Futures

    Saving Your Home From Foreclosure

    Learn the tactics you can use to prevent your home from being repossessed.
  4. Stock Analysis

    How Chimera Investment Bear The Brunt Of REITst?

    Following the financial crisis, REITs that specialized in investing in mortgage-backed securities produced huge gains for their shareholders.
  5. Credit & Loans

    Reverse Mortgages: How To Find A Good One

    Finding a reverse mortgage generally means using a lender that specializes in them. Here's how to find a reputable one.
  6. Stock Analysis

    How Are Interest Rates Affecting Annaly Cap Mgmt?

    Annaly Capital Management reported a net loss of $658 million thanks to the mortgage REIT's strategy of hedging its exposure to higher interest rates.
  7. Savings

    Mortgage Faceoff: Bank of America Vs. Wells Fargo

    Which bank offers the better mortgage deal? Here's how they compare on two popular types of mortgage.
  8. Credit & Loans

    How To Become a Mortgage-Backed Securities Analyst

    Specializing in structured or derivative credit products like mortgage-backed securities requires education and prior experience in the mortgage field.
  9. Investing

    3 Major Risks For Annaly’s Investors

    Thanks to its double-digit dividend yield, Annaly Capital Management has long been a favorite among income-seeking investors.
  10. Investing

    Ready To Invest In Financial Leverage Funds?

    Whenever you invest in a leveraged financial fund or are thinking about doing so, it's important to know the risks that could weigh on its returns.

You May Also Like

Hot Definitions
  1. Efficiency Ratio

    Ratios that are typically used to analyze how well a company uses its assets and liabilities internally. Efficiency Ratios ...
  2. Fixed Cost

    A cost that does not change with an increase or decrease in the amount of goods or services produced. Fixed costs are expenses ...
  3. Subsidy

    A benefit given by the government to groups or individuals usually in the form of a cash payment or tax reduction. The subsidy ...
  4. Sunk Cost

    A cost that has already been incurred and thus cannot be recovered. A sunk cost differs from other, future costs that a business ...
  5. Technical Skills

    1. The knowledge and abilities needed to accomplish mathematical, engineering, scientific or computer-related duties, as ...
  6. Prepaid Expense

    A type of asset that arises on a balance sheet as a result of business making payments for goods and services to be received ...
Trading Center