The interest rate on your existing loan is very attractive but earning nothing on roughly $480k would not be acceptable to me. If I were in this position, I would be looking to sell the home and take $250k (single) or $500k (married) capital gain tax free and roll it into some other income producing asset.
Depending on your current situation you may want the stability of paying down extra on your primary mortgage. However, that’s really a choice you will need to make based on your preferences / level of risk tolerance.
Since there is no standard correct answer, try to just focus on what you think will be best for you and your family. :)
$480 K in equity should be earning you a return of 10% equilivant to about 4K per month in income.
Does that help you any in deciding whether you should hold on to a property which in reality has major negative cash flow.
Faith investors would need the property to appreciate by greater than 50K per year to hold for appreciation alone.
if you don't sell present home ...will you have ample down payment funds for new home ? will you be able to qualify for the new home carrying the rental property ( fyi - you can offset the current mtg payment with rental income if you can get a lease agreement in place on home you will be moving from )
if you can qualify for new home without needing to sell present home and if you are OK with managing a rental property ….then this idea is a fine one ….downside is you will a lot of equity not really working for you
If you are not already pre approved with a lender and if actively looking to buy a home - get pre approval in place asap in order to know for certain that you can qualify for both scenarios ...
Thank you John, Thomas and Dave for the reply, and to answer Dave question , I am pre-qualified for loan without selling the home. So it is my choice I keep it as renting property or sell to take the equity and invest. Initially I thought to convert my loan to 30 years on current $200K and that will reduce my monthly mortgage and save on rent ($1K/month saving) , but I am thinking now to take the equity and either invest in new home to reduce my debt and interest or invest somewhere else.
Sachin - I would agree with the decision ……..its good to know that you are pre approved so that you can buy if you find a place without having the present home affecting your ability to close on a new place