DUSHANBE, February 14, Asia-Plus  -- The National Bank of Tajikistan (NBT) changed refinancing rate on February 8, increasing it from 15 percent to 16 percent.

The source Tajik central bank said that the main reason for increasing the refinancing rate was high inflation rate.  Before that, the refinancing rate was increased from 13% to 15% percent on December 29, 2007.  

According to the NBT, an average rate of Tajik banking system for January stood at 15 percent, while the average rate for 2007 stood at 12.95 percent.  

Refinancing refers to the replacement of an existing debt obligation with a debt obligation bearing different terms. The most common consumer refinancing is for a home mortgage. 

Refinancing may be undertaken to reduce interest costs (by refinancing at a lower rate), to extend the repayment time, to pay off other debts, to reduce one''s periodic payment obligations (sometimes by taking a longer-term loan), to reduce or alter risk (such as by refinancing from a variable-rate to a fixed-rate loan), and/or to raise cash for investment, consumption, or the payment of a dividend.

In essence, refinancing can alter the monthly payments owed on the loan either by changing the loan''s interest rate, or by altering the term to maturity of the loan. More favorable lending conditions may reduce overall borrowing costs.

Another use of refinancing is to reduce the risk associated with an existing loan. Interest rates on adjustable-rate loans and mortgages shift up and down based on the movements of the various indices used to calculate them. By refinancing an adjustable-rate mortgage into a fixed-rate one, the risk of interest rates increasing dramatically is removed, thus ensuring a steady interest rate over time. This flexibility comes at a price as lenders typically charge a risk premium for fixed rate loans.