An Investor Question - Should I pay off or maybe pay down my mortgage before investing in other things?
Here is how I advise my investors (both new and experienced)
*Disclaimer: this is not financial advice. You should review this information, speak with your lender and review your options before making a decision.
Your current home can sometimes be used to create a “line of credit” to fund the down payment on upcoming purchases. If you have enough equity to do that, I recommend it.
Let’s look at 3 different scenarios:
SCENARIO 1 - Your home has enough equity now even with the mortgage to provide that line of credit.
In this scenario, you have the option of paying it off or paying it part of the way down but you don’t need to.
If the goal is investing in other real estate, you can speak with a lender about setting up the line of credit and run some scenarios with and without paying the mortgage off.
SCENARIO 2 - Your home does not have enough equity to fund a line of credit.
In this case, you will need to create space by paying part or all of it off before establishing a line of credit.
Some may ask - why pay down the mortgage if I can just use the money I have as the down payment on the next purchase?
You could but then then you will still have the full current mortgage, plus the new mortgage on the investment.
If you follow this advice and pay down the current mortgage first, you reduce your monthly debt and only need to pay what you use on the line of credit WHEN you use it.
Also, the line of credit can be used multiple times and for many different needs and goals.
In other words, it gives you options and flexibility
SCENARIO 3 - YOU CAN STILL MAKE A PROFITABLE PURCHASE EVEN IF YOU KEEP THE CURRENT MORTGAGE AS IT IS
if you do not have enough equity, you have enough for a down payment but not enough to provide equity in your existing home, then it could be better to keep the current mortgage and use your funds as down payment on the next purchase.
In some cases, it could take way more funds to create a useful gap between the principal that you owe and the home’s value. If that’s the case, don’t let this stop you from growing wealth.
Let’s talk about your mortgage options for the next purchase, including a “Debt Service Loan” that does not look at your credit NOR your income to approve you.
The lender will approve the mortgage based on the INCOME potential of the property you want to buy.
So whether you use a conventional mortgage or other options,
it’s all about the numbers.
Let’s discuss your Goals and I will connect you with a Lender in my Network of Trusted vendors.
I hope this was clear. If not, let me know. - 504-535-4353