If you plan on a temporary interest rate, you could be in for a headache.
You’ve seen the quote all over the place: “Marry the home, but date the rate.” The idea is that you would buy now and wait until interest rates drop to refinance. Is this really the best advice? Today, we’ll be answering that question.
The honest answer is that it depends on your situation and the market. If you’ve found a house you love and can afford the mortgage, even if you can’t refinance, you should pull the trigger. However, if you’re counting on refinancing in the next couple of years, there are risks and downsides that you may want to consider first.
This is especially true in the case of appraisals. When you refinance your home, you must have another appraisal done. If your appraisal comes in lower than the amount you owe, then you could be in for a real headache. You could get stuck with the original loan due to a shift in the market, a lack of comparable homes, or just an overall conservative attitude by the appraiser—during the refinancing process, they are much more conservative in protecting the bank’s money.
“Is this really the best advice?”
Let’s say you bought a property with 3% down, and your appraised value is just 1% lower than what you initially purchased it for. In that situation, you would need to bring 1% of the home’s value. If you paid 20% down, and that appraised value declines, you’d need to bring the difference to closing or incur mortgage insurance.
Finally, you need to consider the expense. There are many costs associated with refinancing, which can add up quickly. These can be things like another title search, application fees, and, of course, that appraisal again. Zero-cost refinances are available on the market, but the lender will recoup those costs by charging a higher interest rate.
The real lesson here is that you must consider real estate a long game. You can’t focus on the short-term and quick fixes. You need to take time to understand the market, the risks, and the potential rewards. Remember, if you have any questions about this topic or about real estate in general, please reach out to me. I would be happy to serve as your resource for all of your real estate needs.