Increase HELOC or Cash?

[Account Closed]

I have an opportunity to pay off my mortgage by the end of the calendar  year.  At the same time I have been waiting for this opportunity to make my first real estate investment. I figure these are my two choices:

1. pay off my own mortgage and increase my current heloc to make my first REI

2. Pay off 90% of my current mortgage leaving 10% of available cash for REI

3. Unless there are other options im not aware of

 I shouldnt be laughing but is this a first world problem?

[Tandi H.]

@Account Closed

#3 - other options. I have a totally different approach for you to consider - refi your house, pull out 75%, and use that for your next REI purchase(s). This may be counter-intuitive to how most of us were raised (pay off your mortgage as soon as possible) but it actually makes sense. Think about this:

- Interest rates are still low, you can probably find a refi around 3.75%

- leaving 25% in equity will avoid mortgage insurance

- 3.75% on an owner-occupied primary home mortgage is less interest than you will pay for a HELOC

- you'll now have a bunch of cash available for multiple REI's, for rehabs, etc

- leaving equity in your house is not earning you money - at the minimum, you could even park it in mutual funds and make 7-8%. Less 3.75-4% on the loan earns you 3-4%. REI can net you even more.

Just another approach to consider.