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. Loan

    The act of giving money, property or other material goods to ...
  3. Nonperforming Loan - NPL

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

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

    A run-up in housing prices fueled by demand, speculation and ...
  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. Home & Auto

    Where are home values falling the fastest in the US, and why?

    Learn about the metropolitan areas in the United States experiencing the largest drops in median single family homes values in 2014 and the reasons behind it.
  5. FHA mortgages offer flexibility and low down payments, though they're often pricier than traditional loans backed by private mortgage insurance.
    Credit & Loans

    Before You Choose An FHA Mortgage: 7 Key Points

    FHA mortgages offer flexibility and low down payments, though they're often pricier than traditional loans backed by private mortgage insurance.
  6. Home & Auto

    How did the ABX index behave during the 2008 subprime mortgage crisis?

    Read about the disastrous performance of the various ABX indexes in the subprime mortgage crisis of 2008 during the middle of the Great Recession.
  7. FHA loans are often a good alternative for those who have trouble obtaining a conventional mortgage, although you do have to pay an insurance premium.
    Home & Auto

    Mortgage For A Manufactured Home? Try The FHA

    FHA loans are often a good alternative for those who have trouble obtaining a conventional mortgage, although you do have to pay an insurance premium.
  8. Mutual Funds & ETFs

    How do traders use the ABX index?

    Learn about some of the ways traders, banks and even hedge funds have traditionally used the ABX indices to make bets on mortgage-backed securities.
  9. You're probably moving a lot and still paying off your student loans. Is it crazy to get a mortgage in your 20s? Here's how to decide.
    Credit & Loans

    Does A Mortgage Make Sense If You're In Your 20s?

    You're probably moving a lot and still paying off your student loans. Is it crazy to get a mortgage in your 20s? Here's how to decide.
  10. The credit crunch and recession caused financial fear, so it's no great shock that our borrowing habits have changed from less than a decade ago.
    Credit & Loans

    How Our Borrowing Habits Have Changed In A Decade

    The credit crunch and recession caused financial fear, so it's no great shock that our borrowing habits have changed from less than a decade ago.

You May Also Like

Hot Definitions
  1. Christmas Island Dollar

    The former currency of Christmas Island, an Australian island in the Indian Ocean that was discovered on December 25, 1643. ...
  2. Santa Claus Rally

    A surge in the price of stocks that often occurs in the week between Christmas and New Year's Day. There are numerous explanations ...
  3. Commodity

    1. A basic good used in commerce that is interchangeable with other commodities of the same type. Commodities are most often ...
  4. Deferred Revenue

    Advance payments or unearned revenue, recorded on the recipient's balance sheet as a liability, until the services have been ...
  5. Multinational Corporation - MNC

    A corporation that has its facilities and other assets in at least one country other than its home country. Such companies ...
  6. SWOT Analysis

    A tool that identifies the strengths, weaknesses, opportunities and threats of an organization. Specifically, SWOT is a basic, ...
Trading Center