Buying a house is a pricey thing to do. Most people will never buy anything else that will take decades to pay off. Because of this, most people don't do it on a whim. There are a lot of money needs, and the payment has to be made every month for the next thirty years or so. The process is already hard enough, but the sky-high prices of homes and steadily rising interest rates make it even harder. This means that many buyers may be looking at loans that they can barely afford to pay back.
Lenders know about these things in the market that have made it hard to buy a home. As a result, the industry has come up with many different kinds of loans to meet the needs of almost everyone. Some of these loans, on the other hand, have terms that can make buying a home a bit risky. Both option adjustable-rate mortgages (ARMs) and interest-only loans can shock buyers a few years down the road when the payments go up a lot. But sometimes, when the buyer asks about these things, the lender will say, "You can refinance later."
That's true in theory. As long as there isn't a huge fee for paying off the loan early, the buyer should be able to refinance at any time. But it's not enough to be able to refinance. The market needs to be in a way that makes it smart to do so. Most people can remember the late 1970s, when mortgage interest rates were as high as 15%. Rates have been near all-time lows recently, but that doesn't mean they won't go back up to that level. If they do, refinancing would be a bad idea, even though it is possible.
Interest rates aren't the only thing that could happen out of the blue. If the economy goes down, you might have to take less money. Or, the market could weaken, which would cause the prices of homes to go down. Either of these could make it hard or even impossible to refinance a house that you can barely afford in a few years.
Most of the time, a lender who says you can always refinance later is telling the truth. But it's not smart to take out a home loan with terms that put a strain on your finances now because you think you can fix it by refinancing later. If the loan you're thinking about is so expensive that you'll have to refinance later, you're probably buying a house you can't afford.
