Mortgage Refinancing Helps Californians Keep Their Homes

by Joe Taylor Jr.
CMR Columnist

Real estate reports reinforce predictions that the market is stabilizing after five years of red-hot increases. In California, the median price of a house in many metropolitan areas more than tripled compared to the price of equivalent houses in other states. Such fast appreciation has made buying a house with traditional home loans an impossibility for most Californians. As interest rates rise, California homeowners rely on mortgage refinancing to avoid higher, unaffordable payments.

With rapid appreciation no longer a given in the California market, conservative financial experts are advising that home buyers think carefully before taking on new mortgages or refinancing one that has become unaffordable. Mortgage lenders are still offering creative home loans that may seem affordable. But, in reality, these home loans could be short-term fixes, leading to insurmountable debt down the road.

Refinancing for Long-Term Stability

Financial advisors still tout the 30-year fixed rate mortgage as the benchmark for determining whether you can afford a house. In other words, if you cant make monthly payments for 30-year fixed rate home loans, you may want to consider a cheaper neighborhood.

Lenders in high-priced real estate markets such as California have helped many buyers get into homes through negative-amortization and interest-only home loans. The results of these new types of financing, however, have yet to be seen. Some advisors say its best to stick with a payment that you know wont change.

Interest rates have risen steadily since 2004, and that trend is expected to continue for the near future. Mortgage financing or refinancing with adjustable-rate home loans is a gamble; your payments will increase without the guarantee that your homes value will appreciate. A fixed-rate mortgage will get you into a house can afford for the long haul.

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About the Author
Joe Taylor Jr. coaches musicians, entrepreneurs, and other adults that want to shift their careers. He holds a Bachelor of Science in Communications from Ithaca College.

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