I currently have a house in Los Angeles, I owe 250K right now. My house appraises around 400K. I am not happy in this community since the school districts are really bad and i had a few brake ins.
I have a goal of paying it off soon so I am in the middle of refinancing to 15 years and my payment will go up to $2,220.00 (3.3 rate) from $1660.00 at (4.0 rate). I will be paying $560.00 more per month.
My other option is not selling the house and buying a second house. The big issue is that I don't have a lot of money saved up and I know that to buy a decent house in LA will be really expensive.
Because 3.3% is such a good interest rate, you could just apply the extra $560 a month to what you are paying now. Typically there are fees with refinancing, which would eat away at your savings. Paying an extra $560 a month lets you pay off 250k in 16 years 4 months, pretty close to your goal (it would have to be about $670 extra a month to meet 15 years). Plus not committing to the new payment will give you flexibility if you need money for an unexpected expense.
As far as getting money for a rental, I would look into a HELOC. The amount available is based on your equity.
Another option would be to save up that $560 or $670 per month, preferably in an interest-bearing account.
I might suggest that you join a real estate investment club. The little money you could put in plus that extra $560.00/mo you are willing to commit to may help your investment club buy a couple of units for you that will earn you an extra $1,000.00 a month for you in return. That could certainly help you pay your house off sooner rather than take an entire 15 years more. Plus by providing your investment club with extra buying power over the long haul you could end up with more rental units to benefit from growing your cash flow for you rather than limiting yourself to what you can do all on your own.
I'd strongly advise you to read what @Matt Slakey
@Matt Slakey suggests above twice, and let that sink in. You can accomplish your goal without locking yourself into a 15 year note by making extra principal payments on your current note. This allows you to payoff the note faster and gives you the ability to scale back should you find the need to do so in the future.
Play with this calculator to find out how much faster you can pay down your note with extra principal payments.
Borrowing the money in a HELOC to purchase a second investment property would get you to your second goal. Just make sure to invest wisely and anticipate the costs of ownership so your investment doesn't become a nightmare..
Matt, thanks for the advice, I was not aware that I cold accomplish the same result by just paying extra to the principal. You're right, there ware fee's that I need to pay to refinance and I asked those fee's to be removed because I am dealing with the same bank, I was told that if they wave those fees my interest rate would be 3.4 instead.
I will look into HELOC, as I do wanna invest but I don't have the money to invest right now.
I never heard of real estate investment clubs before, this is new to me and something that I may consider. It makes sense to invest my money where I know I'll be getting almost 50% ROI.
Thank you for allaborating even more on Matt's reply, I was going to ask for the tool to see how he did the math so quickly. My house has at least 100K in equity, so I need to look at what are the requirements for HELOC.
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