Q: My husband is retired and I work full time. We own our primary home with no mortgage. We also own an investment property that is currently upside down on the mortgage.

We owe about $159,000 on this property and it loses about $5,000 a year. It is currently valued at about $145,000. We’ve attempted to sell it, but there isn’t enough equity in the property to pay off the costs of sale including the real estate commissions, and we don’t have the cash to pay these costs separately.

Would we be better off taking out a mortgage on our primary home and paying off the investment property? Current rates are below 4 percent and we pay over 6 percent on the investment mortgage. Trying to figure out what to do is driving us crazy!

A: Have you figured out the impact on your federal income taxes in having the investment property? While you lose about $5,000 per year, you may be reducing your federal income taxes by a tad due to the loss from the investment property. If you can refinance the investment property and reduce the rate, that might work as well. But these days loans on investment real estate properties are rather scarce.

You could take out a small loan on your primary residence to reduce the balance on the investment property. You’d have to work the numbers through to determine the effect on both your cash flow – that is the amount of money you receive or have to pay to own the investment property – as well as the effect any change would have on your federal income taxes. If you don’t itemize on your federal income taxes, you might not receive any tax benefits due to the interest payments on a small loan on your home.

While it might drive you crazy trying to figure out what to do, the difference in the rates may or may not be that significant. You also need to factor in how long you have had each loan. If you’ve had the loan quite some time, you might improve your short term cash flow by lowering your borrowing costs from 6 percent to 4 percent, but you would also increase the number of years that you would still have to pay off the loan.

You also have to consider that some borrowers might have to pay between $1,500 and $3,000 to refinance or obtain new financing on a home loan. If after you go through all the numbers you still feel that you should take on debt on your home to pay down or pay off the debt on the investment property, you can go ahead and pay those fees knowing that the payback on the fees may take a year or two.

You might want to sit down with a good mortgage lender or broker to walk through your options and the costs involved in the many options that might be available to you. It’s possible that your current arrangement is the best possible arrangement that you can have at this time, but see what your options are and understand the costs involved for you in the short term and long term, as well.

Let me know what you decide to do.