This is my first post to the forum so bear with me-

My wife and I have a 30-yr conventional fixed-rate mortgage. It's $197000 with 5.75%. The house payment of $1214 is painful to pay each month. We're considering liquidating some of our portfolio in order to fund the refinance. We're really big into getting and staying out of debt. The plan is lower the rate and the payment but either 1) still pay $1214 to knock the principal down faster or 2) take a few hundred from the mortgage payment and put it towards my student loan ($18k). We'll snowball the student loan payment back into the mortgage.

My question: With a negative return rate on our portfolio in the last year, is it wise to liquidate (and eliminate possibility of returns for the time being) in order to safe ourselves thousands in interest?

Is your credit good enough to qualify for a sub-4% interest rate?

Why do you need to liquidate the investments to do the refinance? Are you under water? Or need to get to 20% equity? Or is it to pay the closing costs?

I try to avoid guessing about the future. But if you can use the investments to lower your interest rate by 1/3rd, then that's probably equivalent to a pretty high, risk-free return.

Stannius is right - we need more information. It's not clear why you need any cash for a refinance. Understanding why you need cash for that could make a huge difference.

If you liquidate, how much will you be liquidating and what will your losses be? Will you be able to deduct them or offset them against gains?

I want to pay the closing costs and purchase points, rather than roll the costs into the mortgage. Why pay interest on costs if I don't have to? My credit is excellent and always has been. I would only be liquidating stocks and leaving retirement and non-equity investments alone.

I'm not sure if I can deduct the liquidation for mortgage purposes or not. Historically we get a sizable refund back each year.

Thanks for your input.

The "why roll costs into the mortgage" is obvious - because you get to borrow at very low rates rather than sacrificing future returns on your cash. I understand if you are debt adverse and don't want to do that. But it will be costing you money.

You might want to clarify your goal. Is it to reduce your debt? Reduce the length of time before being debt free? Minimize the total interest paid? Maximize your expected future net worth in, say, 30 years? Those are all perfectly acceptable goals but they have different necessary choices now.



No one can "deduct a liquidation for mortgage purposes." If you are selling then you should be selling so that any losses you realize are balanced with gains so that there is no net gain. This lets you shelter gains from taxes...and basically most people should be doing that every year. It should certainly be on the agenda if you are going to be liquidating anyway.

Personally, when we refinanced a couple of years ago we paid the costs in cash but we did not liquidate any investments to do so. Any investments we sold and put into the mortgage would have instantly had a low future return - lower than we expect from leaving the money where it is. The cash we were holding however had no return so we depleted it and have now built it back up.

Have you tried finding a no cost refinance? I am in the process of refinancing and we're doing that. That's taking a higher interest rate to get negative points, which are used to pay the costs of refinancing. It's not the same as rolling the refinancing costs into the mortgage, which is called a no cash refinancing.

I will look into no cost refinance.

I guess the goals are this: Lower rate while we can get them. Lower payment because then we'll pay the same amount to work towards getting out of debt sooner.

....so many decisions. Numbers and percentages all around. It's midnight. I got to get to bed.

Try to separate out the decisions to make it easier on yourself.

Is it worth refinancing? Assuming your credit is good (you'll qualify for a sub-4% rate) and you have 20% equity, then, almost definitely.

Should you refinance to a 15 or 30 (or something in between)? If you strongly intend to keep paying your current payment, and the 15 year payment falls at or under that payment amount, go for the 15. Otherwise stick with a 30.

Finding a specific lender can be a lot of work. And if you're trying to compare point/rate combos even more so.

And then once you have the refinance in place - you can always decide later if you want to pay extra, and if so, how much. And you can change your choice as needed.

Quick equity question: We currently owe $197k. All market value I've found on house and land say it's worth $156k. That's negative equity right? Which would make refinancing difficult/pointless?

I don't know what your costs were, but for our refinance it was 1500, a small potatoes compared to the close to 200K you considering refinancing for. If you hate to pay interest on the closing costs, just wait until you do liquidate the stocks, or get a tax refund, whatever, and apply to the mortage in the first year or so. Same difference.

If you are planning to stay where you are at, then really, look at the numbers, and try to reduce as much as possible the amount of interest you are paying over the length of the loan. 15 year gives you the best rates, but one option may be a 20 year term with lowest rate you qualify for.

If your most important thing is to reduce the amount of your monthly payment, then stick with the same term, but use that difference in interest to have a lower monthly payment. It will give you more flexibility but you won't save as much money.

I would avoid adjustable rate mortages.

Ooops just read your last question. Well, you are in the same position that alot of people are in.
The short answer is, no you cannot refinance if you are underwater.
The long answer is that some people with close to but just under equity in their home, there may be some governmental programs available, especially if you have a freddie mae or freddie mac loan, or can demonstrate financial hardship. But I am not an expert on those.

If you owe $197k and the property is valued at $156k then you have negative equity. You are underwater. You would probably need to come up with enough cash to make up the difference plus some in order to refinance. There are programs that allow 100% or 105% loan-to-value on a refinance. But it sounds like you will have to come up with a lot of cash if you want to refinance and likely will have a difficult time.

Your best bet is probably just to pay aggressively and not bother with refinancing at this time, at least not until you have paid down another $40k-$50k or so.

But, you might want to check that $156k value you are assuming. I have learned recently from an expert that in some areas, because of the extremely poor market conditions, values are so messed up that lenders are effectively being forced to use "adjusted values." These values basically exclude foreclosures, short sales, and other distressed sales in comps. When doing that it often means there is no valid way to get an accurate value. It's something to look into.

Well, think of it this way. If you liquidate your portfolio you get a double win and it's a sure thing as well. First, you get the guaranteed savings on the interest you would pay on your mortgage, that's 5.75% annually. Second, you'll be able to pay down the mortgage faster down to a point where you can refinance. Let's say you get a 30 year fixed at 3.6% or so. That's a 2.15% difference which you're saving on the entire remaining amount of the mortgage.

You'll also need to consider the cost of doing to refinance. How long it would take you to pay down your mortgage to a point where you can refinance. How long you think interest rates will stay low. It depends on how specific you want to get.

Overall I think you'll get a big return liquidating the stocks and paying down the mortgage to a point where you can refinance. If liquidating the stocks doesn't get you there then put in all your effort to get there. Once you have a low rate locked in you can reevaluate what do next.

Thanks for the help everyone. I guess I should've done more research into refinancing. Then I would've realized I am underwater and saved everyone the trouble. I'm still going to talk to a local realtor about the property value. I'll continue building the portfolio and paying the mortgage in hopes that the interest rates will either stay put or get lower.

There is a correlation between interest rates and the stock market. When the stock market goes up, interest rates go up too. Of course that's not the only factor, the biggest factor being the Fed. I'm not sure what the implication of that is. Just something to keep in mind. I don't expect rates to go anywhere near 5.75% in the near future.

I definitely agree, talk to a RE agent or appraiser to get an idea of how accurate the estimates are.