Keep 3.375% 17yr mortgage rate or tap $300k in equity for RE investing?

[Erik Johnson]

Hi,

I am living in my primary residence which was a house hack we used for a while with a mother in law suite. We've refinanced the home and got down to a 3.375% interest rate for 20 years (3 years ago). I want to get into Real Estate Investing and we have the funds to move into a nicer neighborhood for our young kids and keep this one without selling our current residence. There is the potential for appreciate as the area has gotten much nicer and a large hospital is getting built less than 5 miles away. We love the area, but need something a little bigger. This home has roughly $300+ in equity in it, should we be moving on from this home and buying more smaller properties to maximize our portfolio performance.. I worry about giving up this interest rate...

Any thoughts or considerations would be helpful.

Thanks!

[Edward Stephens]

@Erik Johnson the easiest way I can think to approach this problem is first to find out if you can qualify for a new mortgage of sufficient size to buy your new home, while still holding onto your first mortgage.  If you can’t find a lender that can get you sufficient financing on your new home, you might need to sell your current home or lower your expectations for your new home.

Hope this helps.  Reach out or reply with questions.

[Robin Simon]

Quote from @Erik Johnson:

Hi,

I am living in my primary residence which was a house hack we used for a while with a mother in law suite. We've refinanced the home and got down to a 3.375% interest rate for 20 years (3 years ago). I want to get into Real Estate Investing and we have the funds to move into a nicer neighborhood for our young kids and keep this one without selling our current residence. There is the potential for appreciate as the area has gotten much nicer and a large hospital is getting built less than 5 miles away. We love the area, but need something a little bigger. This home has roughly $300+ in equity in it, should we be moving on from this home and buying more smaller properties to maximize our portfolio performance.. I worry about giving up this interest rate...

Any thoughts or considerations would be helpful.

Thanks!

You are probably better off looking for a HELOC for this so you can keep your current 3.375% interest rate, if you went the cash-out refinance route, you'd lose that low rate and have a much higher overall debt burden locked in

[Sarah Beilke]

@Erik Johnson I agree with Edward.  That interest rate is going to be very hard to come by for the foreseeable future.  As long as you can cash flow the current one, which is sounds like you are and qualify for the new one I would keep both.  

[Jaron Walling]

@Erik Johnson Just because you have the funds doesn't mean you need to deploy them. We're in a similar situation and have decided to sell our current primary. The reason?... avoiding taxes, bought distressed a few years ago, and over renovated. You keep saying "we". If you're married you can exclude up $500k in taxes from the government (2/5 year exclusion rule). Unless the current primary cash-flows or you know the market well enough to justify holding (hospitals are one sign of economic growth) selling usually makes more sense. I'd be running the numbers and looking at the ROI.

"We have the funds to move into a nicer neighborhood" - if it's a nicer neighborhood the living expenses are going up. The markets have heated up again and rates have dipped. Good chance you'll have to offer over ask to get what you want. Other than distressed or low quality C-/D class stuff the demand is sky high. Personally it's been hard to justify the additional expense and losing a low interest rate, but the tax savings make up for it. We will deploy those funds for future deals and add $$$ to our rental reserves. 

[George Randall]

I agree with the HELOC route. You won't get 100% of your equity out, but you will have a fund that you can deploy when needed for your investing needs without losing your primary interest rate. The HELOC rate will be high, but you can factor that cost of money into your future investment deal analysis, as you would any other loan.

Do be careful of your timing, though. You'll want to get the HELOC or refi, whichever you choose, closed before you start the approval process on your new home. Underwriters on your primary residence loan typically won't like to see a lot of changes happening in your finances during your approval process. Good luck!