Strategy to sell a loser

[Bryan H.]

Back in 2003 I bought my first primary residence. I paid $154k and it's never been worth that since. I bought it with a 3/1 ARM but was never able to refinance because I've never had 20% equity, and it was never sold to Freddie/Fannie so I didn't get my government bailout.

Fast forward to 2012, my rate adjusts to 3.25% and I'm $30-40k underwater. I decide to move to NC and make my home in MI a rental. The rent is covering all expenses now, so I'm OK for the time being. But with rates rising, next year my mortgage could be as high as 5.25%, which then it will be a loser.

I have 2 other properties that will provide approximately $750/mo cash flow after expenses.

My thoughts are this:

I could continue making normal payments on the house and wait until the principal pay down, and possible appreciation meet at a break even point and then sell. I'd have to ride out the ARM and look forward to some possible minor losses.

I could speed this process up by taking the $750/mo from the other rentals and apply it as extra principal payments. Once the principal pay down and possible appreciation meet, then sell.

Or I could do either option, wait until I have 20% equity and refinance into a fixed rate. I have no idea though what the rates would be when I finally have 20% though.

What do you think??