Projectile collides with Character when shooting upwards!

Gameplay design-wise I wouldn’t spawn it directly at the cameras position, because everytime you shoot the entire missiles thruster glow and smoke trail would be in the players face and blocking the players view. As a player i would find this very irritating and annoying and a bit cheap.
If you want to go for realism/immersion you should spawn slow projectiles like missiles, grenades, etc at the weapons muzzle location.
If you don’t want to use the muzzles location, at least put a slight offset relative to the players camera for spawning missiles or grenades so they don’t block the players view.

If your concern is still this

then my code suggestion should fix that problem. If you use the trace hit point under your crosshair as your target location and your muzzle location as your start location then my suggestion should for hitting that target location (unless there is an obstacle between the cursor and the muzzle, of course).