Caught in variable rate loan - what can I do?

[lukebuz]

Long story short, we were involved in a lawsuit with a neighbor.  Settled the case with agreement to purchase his property (8 rural acres, dilapidated mobile home) for $90,000.

Was not expecting a surprise $90,000 purchase, and all my liquid cash is tied up in the market, which i'm upside down on.  So, I took out a home equity loan to cover.  Rate was good at first, 4%.  Intended to refi into a mortgage, but complications with case delayed.  Now rates have spiked and i'm paying almost 8%.  It's not going to break us, but I hate wasting money.

Are there any options to get this into a lower rate?  Mort rates are 7% + closing costs...

[TomTX]

MMM has you covered:

https://www.mrmoneymustache.com/2021/01/29/margin-loan-ibkr-review/

[clifp]

Currently, IKBR rates are pretty much the lowest a retail investor can get 5.58% or 4.58 for under $100K.
However, they still can, I'd say likely will, go up in the next 6 months.  When they may go down is anyones guess.

[GilesMM]

Can you sell the property?

[lukebuz]

I could sell, but would only in event of emergency - like I couldn't feed my family.  Long story, but our property is landlocked, and selling to someone would expose me to the same issue we just finished a $10,000 lawsuit about.  So, not an option!

Just looking to optimize.

[wageslave23]

Put it this way, would you take out an 8% loan in order to invest in the market?  I wouldn't.  But if you don't want to sell stocks then I'd probably bite the bullet and pay 8% for a couple years until you can refi at a lower rate.

[GilesMM]

I could sell, but would only in event of emergency - like I couldn't feed my family.  Long story, but our property is landlocked, and selling to someone would expose me to the same issue we just finished a $10,000 lawsuit about.  So, not an option!

Just looking to optimize.

We are landlocked also.  You can have an attorney write up a permanent easement for access, then sell the property.

[lukebuz]

Yup - had a permanent access easement already.  Dispute was that I didn't have the right to maintain it or trim any trees growing into it.

I mean, if branches are scratching your car and UPS says they won't deliver to you anymore (until you trim trees), then you should have the ability to remove as you need.
My neighbor disagreed.  He said I could do nothing.  Period.  He was just an asshole looking for a fight...

That being said, not going to sell at this point.  Maybe if I can split land up so I own driveway that could work.  That'll be a bit down the road...
Am currently renting it for $500 a month while someone rehabs the mobile home to eventually take to their own property.  Might consider building / having a rental property there...!

[secondcor521]

It sounds like loss aversion.  You don't want to sell because that would make the paper losses more real to you.  It would also "lock in" your loss and prevent you from participating in any recovery that might happen in the near future.  It might also cement your regret at not getting a low fixed rate when you could have.

I think you made a mistake by ignoring or underestimating the risk of a rate increase on a variable rate loan.  But what is done is done, and your market investments are down whether you sell or not.

I think that borrowing at 8% to invest in the stock market is a bad idea, so I wouldn't do it.  If I found myself in that situation, I would sell enough stock to pay it off.  I'd then reinvest the future loan payments - no longer needed - back into my portfolio according to my AA.  I'd also probably end up with a capital loss that I'd use against future CGs or ordinary income until used up.

Another alternative or additional idea would be to ramp up your income.  Everyone gets two jobs, nobody spends nothing, all income goes to paying down the 8% loan ASAP.  Perhaps as a compromise with yourself, you do this for six months and whatever is left in six months gets paid off with a stock sale.

[sonofsven]

Can you sell the MH? I had a double wide on a property I bought to build on and sold it for $10k cash, and they paid to move it.
The buyers moved it 100 miles to a park and had an instant rental.
It was a 1986 model.
If you do sell the property write into the easement clear rules on keeping trees trimmed adjacent to the driveway.

[YttriumNitrate]

While not a screaming deal like all those 3% 30-year mortgages people locked into, even at 8% you're still only just covering inflation (at least for now) on the $90k. I'd probably just suck it up and keep paying the loan until a better long-term opportunity becomes available.

[lukebuz]

Thanks for all the tips guys.

Definitely a loss-aversion thing.  Feel my poor stock position is about to recover - hopefully 100% or so.  Sticking with the 8% pales to potential for 100%.
If I get a significant recovery, I have my way out...

Did already sell the MH - $2500, and that was a fair deal.  It was bad.  The rent they pay for land is covering the interest for now, but just always looking to optimize.

I can take comfort in knowing my mortgage is 2.25% though...

[lutorm]

Maybe you can take comfort in the fact that economists agree that a variable-rate loan is, on average, better than a fixed rate one...
https://freakonomics.com/podcast/are-personal-finance-gurus-giving-you-bad-advice/

[GilesMM]

Yup - had a permanent access easement already.  Dispute was that I didn't have the right to maintain it or trim any trees growing into it.

So now that you own it, redraft the easement to provide whatever rights suit you.  I don't have rights to maintain mine but I do anyhow.  Neighbor knows if he wants to fight about it he'll lose quite a bit of skin along the way.

[lukebuz]

^^Up, already done, actually!  I have it all drafted up; 2 detailed pages.  However, we are still leaning towards keeping the property and building a small home or refurbishing a used mobile home and renting it out.

Path forward uncertain, but have done my homework!