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Is It Time to Refinance?

With interest rates rising and the surge in home prices slowing down, It's time to rethink how you play the financing game.

This story appears in the May 2006 issue of Entrepreneur. Subscribe »

A financially savvy CPA I know bought a spectacular house three years ago--more house than he should have been able to afford on his salary. He took out an interest-only loan and said he'd eventually refinance. The market value of his home danced higher, and before long he leveraged that, too, tapping a home equity line to invest in an undeveloped lot. Welcome to the era of fully leveraged homeownership. Everybody's doin' it.

The low interest rates and high home-price appreciation during recent years have allowed millions of Americans to borrow tens of billions of dollars in home equity debt. The tide, though, has turned: Interest rates are rising, and home prices are flat or falling in many parts of the country. What now for homeowners like my friend the CPA, who borrowed heavily against the roof over his head?

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