How Seller Credits Can Save You Thousands When Buying a Home in 2025 As the…
Is it Smarter to Buy a Home in California Now and Refinance Later?
Many homeowners in California use the “buy now, refinance later” strategy. This is where you purchase a home at current mortgage rates and refinance later when rates drop.
But when does it make sense to do this? Is now a good time to use this strategy? Or would it be better to wait for rates to decline, even with the risk of rising home prices?
Here are five things you should know about this strategy:
- The Strategy: You can buy a California home now, even at a higher interest rate, and plan to refinance if rates decrease later.
- Why Consider It: This lets you secure a home sooner and start building ownership equity, despite current market conditions.
- Potential Upside: If interest rates fall, refinancing could significantly lower your future monthly mortgage payments.
- Important Risks: Future rate drops aren’t guaranteed, and refinancing involves costs and requires you to qualify again.
- Best Fit: This approach generally works best for financially stable buyers who plan to stay in their home long-term and understand the uncertainties.
This guide explores all aspects of the topic, to help you make an informed decision.
The “Buy Now, Refinance Later” Strategy Explained
At its core, the “buy now, refinance later” strategy involves purchasing a home that you intend to keep for the long haul, even if the current mortgage rates aren’t ideal.
The goal is to secure the property and begin building equity now, with the expectation that you can refinance your mortgage later on if interest rates decline.
We’ll talk about the pros and cons of this strategy in a moment. But first, we have to look at what it means to refinance a home.
What Is Refinancing?
Refinancing is when you replace your existing mortgage loan with a new one. The new loan usually has different terms from the current one, including a different interest rate.
In California, homeowners usually refinance to do one of the following:
- Secure a lower interest rate on the new loan, reducing the monthly payments going forward.
- Shorten the loan term or length (e.g., from a 30-year to a 15-year mortgage).
- Switch from an adjustable-rate mortgage (ARM) to a fixed-rate mortgage for payment stability and predictability.
- Tap into home equity for other financial needs, using a cash-out refinance.
As with a purchase loan, the mortgage refinancing process involves an application, credit check, income verification, a home appraisal, and a final closing.
Potential Benefits of Buying Now and Refinancing Later
Like many mortgage strategies, buying now and refinancing later offers some potential benefits for California home buyers. Here are some of those benefits:
- Avoiding Higher Prices Down the Road In a competitive real estate market like California, waiting for lower rates could mean facing even higher home prices. Buying now allows you to lock in the current price of a home you want and avoid being priced out if values continue to appreciate over the long term.
- Building Equity Sooner Every mortgage payment you make includes a portion that goes towards the principal, increasing your ownership stake in the property. The sooner you buy, the sooner you can initiate this wealth-building process. Historically, California home prices tend to rise over time.
- Avoiding Rent Price Increases With a fixed-rate mortgage loan, the interest rate and monthly payments stay the same for as long as you keep the loan. This offers more predictability, when compared to rental costs that can rise steadily over time.
- Securing a Lower Mortgage Rate If interest rates do fall significantly after you purchase the home, a refinance could lead to significant monthly savings and reduce the total interest paid over time. This could free up cash flow for other investments or financial goals.
Potential Risks and Important Considerations
The buy now, refinance later strategy comes with its fair share of uncertainty, because we never know exactly how interest rates will “behave” in the future.
Here’s a full list of potential risks and considerations for borrowers:
- No Guarantee of Lower Rates Interest rate forecasts represent an educated guess, rather than a certainty. Rates could remain flat, fall less than anticipated, or even rise. Basing a major financial decision solely on the hope of future rate drops is speculative.
- Refinancing Costs In California, there may be closing costs when refinancing so you’ll want to determine the “break-even point” before proceeding. The break-even point shows how long it will take for the monthly savings from a lower rate to offset the refinancing fees. If you don’t plan to stay in the home long enough after refinancing, it might not be financially beneficial.
- Home Value Fluctuations Your home’s value plays a key role in whether or not you can refinance. If property values decline after you buy the home, you might have insufficient equity (or a loan-to-value ratio that’s too high) to qualify for refinancing. So there’s a degree of uncertainty here.
- Qualifying for Refinance Your ability to refinance in the future will depend on your financial situation at that time. Changes in your income, credit score, or debt level could affect your eligibility. The best-case scenario is to maintain good credit and steady (or rising) income after purchasing the home, if you hope to refinance later on.
Scenarios Where This Strategy Makes Sense
Generally speaking, the buying now and refinancing later strategy works best for the following types of borrowers.
- Long-term homeowners: Individuals or families who have found a home they love and plan to live in for at least 7-10 years. This longer timeframe provides more opportunity for rates to potentially fall and to recoup refinancing costs.
- Financially stable buyers: Those who can comfortably afford the mortgage payments at the current interest rate without overstretching their budget.
- Buyers with good credit: A strong credit profile will help you qualify for a favorable mortgage rate later on, making this strategy more successful.
- Well-informed individuals: Buyers who understand the uncertainties involved and have a contingency plan if rates don’t drop as expected.
Scenarios Where It Might Be Less Appropriate
On the flip side, the buy now and refinance later strategy might be less appropriate if any of the following are true:
- You’re already stretching your budget to afford a home at current rates.
- You face job instability or anticipate major changes in your financial situation.
- You plan to move again in a few years (short-term resale horizon).
- You’re risk-averse and uncomfortable with the uncertainty of future rate trends.
Conclusion and How to Learn More
The decision to buy a home in California now and hope to refinance later is highly personalized. There is no universal “right” answer.
It really comes down to your personal financial situation, long-term housing goals, risk tolerance, and a careful assessment of the current market.
For well-prepared buyers focused on the long term, this strategy can be a viable path to homeownership with potential benefits down the road. But borrowers need to understand the financial commitments and the uncertainties involved.
Have questions? If you’re located in California, we can assess your current situation to determine if this strategy makes sense. Please contact us with your questions!