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.