Should I get a personal loan to pay on my mortgage to go “above water” to qualify for a refinance?
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.
No. This logic is dangerous.  The apples to apples comparison between renting and buying should be between similar living arrangements. One can't (legitimately) compare living in a 600 sq ft studio to a 3500 sq ft house.  With the proposal you offer, one should get the largest mortgage they qualify for, but that can result in a house far too big for their needs. Borrowing to buy just what you need makes sense. Borrowing to buy a house with rooms you may never visit, not a great idea.  By the way, do the numbers. The 30 year rate is 4%. You'd need a $250,000 mortgage to get $10,000 in interest the first year, that's a $312,000 house given an 80% loan. On a median income, do you think it makes sense to buy a house twice the US median?  Last, a portion of the tax savings is 'lost' to the fact that you have a standard deduction of nearly $6,000 in 2012. So that huge mortgage gets you an extra $4000 in write-off, and $600 back in taxes.  Don't ever let the Tax Tail wag the Investing Dog, or in this case the House Dog.  Edit - the investment return on real estate is a hot topic. I think it's fair to say that long term one must include the rental value of the house in calculating returns. In the case of buying of way-too-big house, you are not getting the return, it's the same as renting a four bedroom, but leaving three empty.  If I can go on a bit - I own a rental, it's worth $200K and after condo fee and property tax, I get $10K/yr. A 5% return, plus whatever appreciation. Now, if I lived there, I'd correctly claim that part of my return is the rental value, the rent I don't pay elsewhere, so the return to me is the potential growth as well as saved rent. But if the condo rents for $1200, and I'd otherwise live in a $600 apartment with less space, the return to me is lost. In my personal case, in fact, I bought a too big house. Not too big for our paycheck, the cost and therefore the mortgage were well below what the bank qualified us for. Too big for the need. I paid for two rooms we really don't use. How can people afford 10% mortgage? Part of the history of housing prices was the non-bubble component of the bubble. To be clear, there was a housing bubble and crash. Let me offer some simple math to illustrate my point -  This is what happened on the way down. A middle class earner, $60K/yr couple, using 25% of their income, the normal percent for a qualified mortgage, was able to afford $142K for the mortgage payment. At 10% fixed rate. This meant that after down payment, they were buying a house at $175K or so, which was above median home pricing.  Years later, obviously, this wasn't a step function, with a rate of 4%, and ignoring any potential rise of income, as in real term, income was pretty stagnant, the same $1250/mo could pay for a $260K mortgage. If you want to say that taxes and insurance would push that down a bit, sure, drop the loan to $240K, and the house price is $300K.  My thesis ('my belief' or 'proposal', I haven't written a scholarly paper, yet) is that the relationship between median home price and median income is easily calculated based on current 30 year fixed rate loans. For all the talk of housing prices, this is the long term number. Housing cannot exceed income inflation long term as it would creep up as a percent of income and slow demand. I'm not talking McMansion here, only the median. By definition, the median house targets the median earners, the middle class.  The price increase I illustrate was just over 70%. See the famous Shiller chart -  The index move from 110 to 199 is an 81% rise. I maintain, 70 of that 81 can be accounted for by my math. Late 80's, 1987 to be exact, my wife got a mortgage for 9%, and we thought that was ok, as I had paid over 13% just 3 years earlier. "In England, currently and for most of the last fifty years, the standard length of the mortgage term is 25 years. A mortgage can be either a capital-and-interest mortgage, or interest-only. In the former, you pay off part of the original loan each month, plus the interest on the amount borrowed. In the latter, you only pay interest each month, and the original amount borrowed never reduces: you pay premiums on a life insurance policy, additionally, which is designed to pay off the original sum borrowed at the end of the 25 years. No one in England thinks that a 25 year loan has any drawbacks. The main point to appreciate is that the longer the period of the loan, the less you need to pay each month, because you are repaying the original loan - the capital - over a longer period of time. Thus, in principle, a mortgage is easier to repay the longer the term is, because the monthly payment is less. If you have a 12 year mortgage, you must pay back the original amount borrowed in half the time: the capital element in your payment each month is double what it would be if repaid over 25 years - i.e. if repaid over a period twice as long. Only if the borrower is less than 25 years away from retirement is a 25 years mortgage seen as a bad idea, by the lender - because, obviously, the lender relies on the borrower having an income sufficient to keep up the repayments. There are many complicating factors: an interest-only mortgage, where you pay back the original amount borrowed from the maturity proceeds from a life policy, puts you in a situation where the original capital sum never reduces, so you always pay the same each month. But on a straight repayment mortgage, the traditional type, you pay less and less each month as time goes by, for you are reducing the capital outstanding each month, and because that is reducing so is the amount of interest you pay each month (as this is calculated on the outstanding capital amount). There are snags to avoid, if you can. For example, some mortgage contracts impose penalties if the borrower repays more than the due monthly amount, hence in effect the borrower faces a - possibly heavy - financial penalty for early repayment of the loan. But not all mortgages include such a condition. If house prices are on a rising trend, the market value of the property will soon be worth considerably more than the amount owed on the mortgage, especially where the mortgage debt is reducing every month, as each repayment is made; so the bank or other lender will not be worried about lending over a 25 year term, because if it forecloses there should normally be no difficulty in recovering the outstanding amount from the sale proceeds. If the borrower falls behind on the repayments, or house prices fall, he may soon get into difficulties; but this could happen to anyone - it is not a particular problem of a 25 year term. Where a default in repayment occurs, the bank will often suggest lengthening the mortgage term, from 25 years to 30 years, in order to reduce the amount of the monthly repayment, as a means of helping the borrower. So longer terms than 25 years are in fact a positive solution in a case of financial difficulty.  Of course, the longer the term the greater the amount that the borrower will pay in total. But the longer the term, the less he will pay each month - at least on a traditional capital-and-interest mortgage. So it is a question of balancing those two competing factors.  As long as you do not have a mortgage condition that penalises the borrower for paying off the loan more quickly, it can make sense to have as long a term as possible, to begin with, which can be shortened by increasing the monthly repayment as fast as circumstances allow. In England, we used to have tax relief on mortgage payments, and so in times gone by it did make sense to let the mortgage run the full 25 years, in order to get maximum tax relief - the rules were very complex, but it tended to maximise your tax relief by paying over the longest possible period. But today, with no income tax relief given on mortgage payments, that is no longer a consideration in this country. The practical position is, of course, that you can never tell how long it might take you to pay off a mortgage. It is a gamble as to whether your income will rise in future years, and whether your job will last until your mortgage is paid off. You might fall ill, you might be made redundant, you might be demoted. Mortgage interest rates might rise. It is never possible to say that you ""can"" pay off the loan in a short time.  If you hope to do so, the only matters that actually fall within your control are the conditions of the mortgage contract itself. Get a good lawyer. Tell him to watch out for early-redemption penalties. Get a good financial adviser. Tell him to work out what you will need to pay in additional premiums on your life policy if you are considering taking an interest-only mortgage. Try to fix your mortgage rate in the first few years, for as long as possible, so that in your most vulnerable period, with the greatest amount owing, you are insulated against unexpected interest rate fluctuations. Only the initial conditions can be controlled, so it might be prudent to take as long a term as possible, even though a prudent borrower will leave himself room to reduce that term, and a prudent lender will leave room to extend it, in case of unpredictable changes in the financial circumstances. In England, most lenders are, in my experience, reluctant to grant mortgages for less than 25 years. That is simply a policy. Rightly or wrongly, the borrower usually has no choice about the length of the mortgbage term. Hence, in the UK it can be difficult to find a choice of interest rates based on differing mortgage terms. I am aware that the situation in the USA is rather different, but if I personally were faced with the choice I would be uncomfortable about taking on a short term mortgage, because of the factors I have outlined above." 1- Wells Fargo does not own our current mortgage.  They have bundled it and sold it as an investment. 2- They make their money from 'servicing' the loan.  Even if they only get $50 per month to service it (3% of our monthly payment), that adds up to $50,000,000 per month if they have a million homes under management.  That is $600 million per year for each million homes being serviced 3- Managing the escrow gets them additional profit, because they can invest it and earn 2-3%.  If 1,000,000 homes have an average balance of $2,000 in their escrow accounts, they can earn up to $60 per year, or $60,000,000 annually. 4- They make $1,000 every time they refinance the home.  This is the approximate profit after paying real closing costs.  Refinance those million homes, and you make a cool billion in profit! 5- They also want to be sure that they keep us as a customer.  By lowering our payment, they decrease the likelyhood that we will refinance with someone else, and we are less likely to default.  (Not that they lose if we default, because they don't own the loan!) 6- they make additional profit by paying off the old loan (they don't own it… remember), then packaging and selling the new mortgage.  Since they are selling it as a security, they sell for future value, meaning they sell our $200,000 loan for a valuation of $360,000.  This means that they sell for $200,000 PLUS some fraction of the additional $160,000.  Let's say they only want a 10% premium of the $360,000 valuation.  That means they sell our $200,000 loan for $236,000.  They pocket $36,000.  If they make a million of these transactions every year, that is $36 billion dollars in profit So… Wells fargo refinances one million homes every year, and they make: $36,000,000,000 initial profit for selling the loan (with absolutely no risk!), plus $1,000,000,000 for doing the loan $660,000,000 annually to service the loan (Very little risk, since it is being paid by the owner of the loan as a service fee) If they can retain the loans for their entire life (keep us from refinancing with someone else…), they can make $19,800,000,000 (that is 19.8 billion dollars in servicing fees) The profit they make in a refinance is much greater than the money then can make by holding the loan for 30 years. The terms of most mortgages usually include the requirement for tax escrow. Some banks will let you handle your own taxes once you loan to value drops below 50%. It's annoying that you lose the use of your own funds, I agree. It can't hurt to write a note to the bank and see it they'll waive escrow. My in-laws are pressuring me to buy a home.  I don't really have much financial experience. In fact, I'm a nightmare with finances. I almost have my student loans payed off from school.  My in-laws and husband are great with finances and with real-estate.  My husband has a good job and $200k in savings.  I have a good job too, and still have some debt from school. (approx $60k left of 180k).   They say the house will be available in Jan or February for purchase, and that we should really try to buy it (prob $2-3 mil).   My guess is they want to make it available to us off the market (which is a huge benefit in this area,  there are really no houses available lately) .   The problem is:  I am uncomfortable because I don't have all of my loans payed off,  I could divert money away from paying off the loans in order to save for a larger downpayment. I just got a bonus of $35k (after taxes)   I don't think I'll have all of my loans payed off by January. Should I save my money for the downpayment or focus on my loans, should I go for the house?  I don't know how to weigh these options against each other with such little experience. The bank I work with would be more inclined to expand an existing HELOC rather than write a new one. I think that would be your best bet if you decide to continue borrowing against your home. Consider that your own income would have to support the repayment of these larger homes. If it is, why didn't you buy a larger home to begin with? As far as increasing the appraisal, you don't usually get one dollar of increased appraisal for each dollar you spend on improvements unless you have a rundown house in a nice neighborhood; part of the appraisal comes from a comparison with the appraisals of the other homes nearby. Eventually you get close enough to par with the other houses that anyone looking for something more expensive will often choose a different neighborhood entirely. Update: To your edit that mentions the original lender will cap the amount you can borrow, you can take additional secondary mortgages/HELOCs, but the interest rate is usually higher because it is not the first mortgage. I don't generally recommend it, but the option is there. If you can deal with phone calls instead of a face to face meeting, for the average person with an average refinance online tools just offer another way to shop for deals. For new mortgages, I think having a person you can meet face to face will avoid problems, but for just a simple refi, online is one of the places you should check. Compete your current mortgage company, your bank (hopefully credit union), a local broker or two and the online places. The more competition you have, the more power you have in making a good choice.