Previously, we mentioned the problems variable rate loans can cause a property investor. Some may wonder if a variable rate skyrockets, why the investor would simply not re-finance the loan. Well, in some cases this may not be possible. Imagine the following scenario: a buyer selects a home out of Property Investment Guides for overseas property Investing and purchases it with a variable rate loan. Then, property values drop dramatically. In fact, the value drops so significantly that any loan acquired via refinancing would be BELOW the original loan. So, to refinance would be a loss regardless as significant money would still be owed on the original loan. In other words, the loan wouldn’t be paid off and the new lender would not be able to foreclose on the home if the lender was in default. In short, the buyer would not be able to refinance. While this might seem like and extreme scenario, it is not. Many people have learned this common problem with variable rate loans and learned it the hard way. Variable rate loans do have their benefits, but they also have a number of negatives. That is why one should think very carefully before accepting a loan under these terms.

This entry was posted on Wednesday, May 14th, 2008 at 4:13 am and is filed under Real Estate. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.