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seagullplayer -> 401K (7/7/2008 7:23:25 AM)

In about three years our home will be paid off.

We have a rather high interest rate for this day and age, I am thinking of borrowing the money to pay the house off from my 401K and paying back to myself. Any interest I pay would be paid to my account. I really think we could up the amount they take from my check each week and pay it off faster than it we would otherwise.

My position at work seems solid, I have been here about 7 years, I don't see working anywhere else anytime soon. What is the downside to this move?



peace77 -> RE: 401K (7/7/2008 12:28:19 PM)

One downside is that if you lose your job or if your company moves out of the country, your loan becomes due immediately. When you don't have a job is the worst time to have to come up with extra funds.

If you think that you can come up with extra each paycheck to pay on the loan, can you just make extra payments to principal on the mortgage?

Check with your mortgage company regarding their method of doing this. Some companies will allow you to add the additional amount to your mortgage check and others require a separate check.

After you send the additional amount, check to make sure that the mortgage company put it towards principal and not into your escrow account.

If you do decide to pay off the loan, ask the loan company for the pay off amount, it will be different from your loan balance on your statement.


Peace,
Anne



Miss Giggles -> RE: 401K (7/7/2008 12:29:20 PM)

If you have a regular fixed rate mortgage, you have already paid most of the interest. Just send in extra to pay off the remainder of the loan. it's not worth it to take out a loan for 3 years.



JimboFletch -> RE: 401K (7/7/2008 5:10:42 PM)

quote:

ORIGINAL: peace77

One downside is that if you lose your job or if your company moves out of the country, your loan becomes due immediately. When you don't have a job is the worst time to have to come up with extra funds.

And, if it was like mine, you'll take a tax hit for the owed funds.

I used similar logic to take out a 5 year loan to do some home improvement projects. After 24 and a half years of employment, I was laid off and the loan balance became immediately due or else it would be deducted from my balance and treated as taxable income. I took the tax hit to avoid using available cash to pay off the 401K loan.



GroupW -> RE: 401K (7/8/2008 11:26:54 PM)

quote:

ORIGINAL: peace77

One downside is that if you lose your job or if your company moves out of the country, your loan becomes due immediately. When you don't have a job is the worst time to have to come up with extra funds.

If you think that you can come up with extra each paycheck to pay on the loan, can you just make extra payments to principal on the mortgage?

Check with your mortgage company regarding their method of doing this. Some companies will allow you to add the additional amount to your mortgage check and others require a separate check.

After you send the additional amount, check to make sure that the mortgage company put it towards principal and not into your escrow account.

If you do decide to pay off the loan, ask the loan company for the pay off amount, it will be different from your loan balance on your statement.


Peace,
Anne

Peace - you know this stuff, so I'll ask. I was under the impression that whether or not a 401k loan is payable on demand at the date of separation from service depended on the administrator of the plan and who was paying the administration expenses. On a prior employers plan, I remember being under the impression that the administrator had the ability to carry the loan since the employer was paying all administration fees etc. The administrator in this case was Fidelity, and with the company paying the fees for separated employees, Fidelity was incented to maintain & service the loan.

Did I get that wrong?



NoShow -> RE: 401K (7/9/2008 10:12:07 AM)

I think one of the biggest issues with 401(k) loan is this:

Most people take them out, when they feel that their position with the company is secure. So IF they were to find themselves out of that job, it's probably going to be quite a surprise to them. And when that happens, the 401(k) sort of becomes the double whammy; lost the job and oh, yeah your loan is due.

How much money do you figure you will save? If you can pay your mortgage off within three years, I take it the balance isn't significant. Which means the interest savings might not be worth the piece of mind you could be giving up.



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