I purchased my primary residence in 2007. The rate was 5.99% on a 30 year fixed. Rates have dropped dramatically since then, but so have home prices. I wanted to refinance a while back, but it looked like the lender was going to require an appraisal. At that time, the rate was 4 7/8s for a new 30 year fixed.

The difference between above water and not seemed to be about $12,000.

Should I get a personal loan at the lowest rate I can find to put down on the principal, and then get the refi?

Should I forget the refi idea and just pay more every month to achieve the same kind of savings?

It seems like I will be in the house for a good long while (at least 5 more years), and, in reality, I am making about 40% more now than when I bought the house, so even if I do move, I might just keep it and rent it out.

Edit for some details:

Loan balance is about 193k

House would probably appraise for 180 based on some local sales and advice I got from a few realtors who sent me comps (didnt get official appraisal because $400)

Loan was backed by WV HDF who I think require 97% LTV.

There would be closing costs if I refinanced through them, but it is not necessary to go through them to refinance. As long as it is my primary residence, I can do whatever I want.

4 Answers 4


It depends on how long it will take you to pay off the personal loan, the rate for the personal loan, the refi rate you think you can get, how much principal you will have to add to get the refi (may have gone up since then).

Since you did not provide all the necessary details, the general answer is to sketch out your total payments (mortgage + personal loan) with and without the refi over the life of the mortgage and see if you end up with more money in your pocket with the refi.

My overall impression based on the details you did provide is that you will probably find it worthwhile to do the refi.


Let's say you owe $200K (since you didn't mention balance. If you do, I'd edit my response), and can get 4.5%. You'd save 1.5% or about $3K/yr the first few years. If a $12K paydown is all that's between you and and refi I'd figure out a way.

There are banks that are offering refi's under the HARP program if your current mortgage is owned by FNMA or FMAC which permit even if under water.

So, the first step is research to see if you can refi exactly what's owed, failing that, shop around. A 401(k) loan will not appear as a loan on your credit report, that may be one way to raise the $12K. The best thing you can do is put all the savings into the 401(k) to really get it going.


If you have a mortgage backed by FHA, Fannie, or Freddie I would hold off. There is talk of a new plan that would allow refi's on mortages that were underwater. I would expect rates to stay about the same for the forseeable future. Take that money you would spend each month on the personal loan and stick it into your mortgage payment to bring down your debt on it. Your home may be underwater on paper but once the economy comes back, or hyperinflation sets in (one of the 2 will happen) you will have equity in your home again soon after.


Does it cost money to refi? I know there are quite a few deals out there, I refi'd in June for $500, not bad. But sometimes can cost couple grand. If so, you have up front costs, plus the cost of the personal loan, that probably would break even at some point after your refi, but at what point? Will you sell before then, or even think about it? Or would you break even next year, then its a no brainer. As mentioned by others, do the numbers.

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