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Four Dangerous Words - "You Can Refinance Later"
By: Charles Essmeier
Buying a house is an expensive proposition. It's the only thing most people will
ever buy that will take decades to pay off. As such, it is not something most
buyers enter into lightly. The financial demands are significant and the payment
has to be made each and every month for the next thirty years or so. Adding to
the complexities of the process are the current sky-high prices of housing and
the fact that interest rates are steadily rising. This adds up to a situation
where many buyers may find themselves looking at loans they can barely afford to
pay.
Lenders are aware of these market situations that have made buying a home a
difficult endeavor. The industry has responded by creating a wide variety of
loan options in order to meet the needs of just about anyone. Some of these
loans, however, offer terms that can make buying a home somewhat of a risky
proposition. Option ARM and interest-only loans can both shock buyers several
years down the road when they adjust, creating huge increases in the monthly
payments. Yet sometimes, when the buyer asks about these things, the lender will
reply with "You can refinance later."
In theory, that is true. Assuming that the loan has no overly expensive early
payment penalty, the buyer should be able to refinance at any time. But being
able to refinance is one thing; having market conditions that make refinancing a
smart move is something else. Most people can remember the late 1970's, when
interest rates for houses topped 15%. While rates have been near historic lows
recently, there is no guarantee that they will not rise to that level again. If
they do, refinancing, while possible, would certainly be a bad idea.
Interest rates are no the only unforeseen circumstance that might arise. The
economy might take a downturn and you might have to take a pay cut. Or the
market could soften, causing property values to decline. Either of these could
make refinancing a house that you can only barely afford difficult or even
impossible several years from now.
When a lender points out that you can always refinance later, he or she is
generally telling the truth. But taking out a home loan with terms that are
stretching your finances now while assuming that you can make it better later by
refinancing is poor financial planning. If the loan you are considering is
expensive to the point where refinancing later is a necessity, you are probably
buying a house that you cannot afford.
About the Author:
©Copyright 2006 by Retro Marketing. Charles Essmeier is the owner of Retro
Marketing, a firm devoted to informational Websites, including
http://www.homeequityhelp.net ,
a site devoted to information regarding home equity lending. |
