Borrowing out of 401k for Primary Residence Mortgage

[talisman]

That is about the only thing I would use a loan fom my 401k for though.

Lol, yeah, definitely. Anyone know if there are any type of tax deductions on this type of loan that might offset the taxed dollars repayment?

[bucky]

I've borrowed 5k out of mine on multiple occasions and usually paid it back to myself in 12-24 months. I have never really seen a downside to it. Much cheaper than a line of credit loan from my CU. I would be a little apprehensive about pulling 20k out. Unless you are just trying to get your monthly payment as cheap as possible have you looked into a conventional loan? I just bought a house last month on a conventional loan with only 5% down and bought out my PMI. Even if you carry PMI its still a lot cheaper than a FHA loan...

[snacksnack]

What percentage of the house down payment would this be? If this was to keep you out of pmi that would make it more worth while to me.

[talisman]

Lets just say I'm looking for something as dirt cheap as possible that can be paid off in 5-10 years. As long as it is in an okay neighborhood, I don't need anything ridiculously elaborate. Made that mistake with the oversized house.

[UserX]

Won't you lose out on compound interest while you're paying it back? I've never touched mine, don't think I would unless it was an absolute emergency.

[slow99]

^^^
Yes. 401k is a retirement acct, not a piggybank.

[ceyko]

I've borrowed 5k out of mine on multiple occasions and usually paid it back to myself in 12-24 months. I have never really seen a downside to it. Much cheaper than a line of credit loan from my CU. I would be a little apprehensive about pulling 20k out. Unless you are just trying to get your monthly payment as cheap as possible have you looked into a conventional loan? I just bought a house last month on a conventional loan with only 5% down and bought out my PMI. Even if you carry PMI its still a lot cheaper than a FHA loan...

Can I ask what sort of interest the charge on that? I understand it just goes back into the account, but just curious.

I did research this, but could have SWORN my research indicated you were taxed on the loan and then would be taxed again if you live long enough to get your 401K. Would like to revisit this in my personal life if that's not true.

Is it usually a certain percentage up to a certain max that they allow you to loan?

[talisman]

^^^
Yes. 401k is a retirement acct, not a piggybank.

Your recommendation would be not to do it based on the information given?

[Bad Religion]

I think you can borrow up to half and pay 5% interest no taxes. I think it would be a good idea to duck the PMI

[slow99]

Your recommendation would be not to do it based on the information given?

Full disclosure - I'm on my phone watching my 10 month old boy - but generally speaking that's correct. You could run the numbers in a matter of minutes and gauge the impact. Quick starting point to ballpark the impact would be to compound $12.5k for 20 years at 7% tax deferred.

[ceyko]

I read up on it again.

So you take 100 dollars out.

You pay back the 100 + say 5 dollars interest with post tax money

Then when you get the money from retirement it is taxed again. At least that's how I look at it.

However, since it's not officially taxed I'm not seeing it be too bad. If you borrow 100 dollars and pay 105 back to a bank - that 5 goes to the bank not you and it's post tax money too.

[UserX]

I read up on it again.

So you take 100 dollars out.

You pay back the 100 + say 5 dollars interest with post tax money

Then when you get the money from retirement it is taxed again. At least that's how I look at it.

However, since it's not officially taxed I'm not seeing it be too bad. If you borrow 100 dollars and pay 105 back to a bank - that 5 goes to the bank not you and it's post tax money too.

You're not factoring in the compound interest you're losing by withdrawing the money from your 401K.

[Doug Hatton]

Everything I've read says it's a big No-No. I think the train of thought is that, like mentioned above, you're pulling out money that wasn't taxed, you're paying it back with money that has been taxed and you'll be taxed on it again when you retire. That, combined with the fact that it's perhaps not "working for you" at the same level as if it were left alone. Yeah, you're paying yourself interest, but it's costing YOU money to get that interest, not someone else, so it's not of value. I'd investigate other options if you can.

[2011GT]

You could consider the home an investment also. I've borrowed against my 401k for two homes now.

[slow99]

You could consider the home an investment also. I've borrowed against my 401k for two homes now.

The home is only an investment if you borrow from your 401k?