Refinancing Conundrum - Don't Forget About This

[Chris Seveney]

I was recently reading a thread on another website about someone asking which mortgage they should take. They were strongly considering one with the lowest down payment and the highest interest rate based on the "I can refinance this when rates go down theory".  While this is true, I think most people forget there are two components to refinance. The first of course being ability to repay (which borrower should qualify for in this instance since their payment is going down), but more importantly is the loan to value. 

I think people are ignoring this thinking that real estate appreciation is linear, which it is not. For example, if you buy a $400k home and put 20% down (say its investment) your loan is $320k. If that property drops 5 you now have another $15k to come up with on top of the closing costs on that property. Now some people have that no problem, but others forget that when you put little down, a refinance is not a guarantee because of the LTV factor.

So something to consider. Love to hear others opinions