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The first few things I've read on it make it sound like a bad idea.

GeddyWrox wrote:The first few things I've read on it make it sound like a bad idea.

Yeah I think it is.

I was asking if you would take a penalty on your 401K. At that point I definitely wouldn't do it.

But I'm a shrink.

Michael wrote:

GeddyWrox wrote:I'm down to ~47K left to pay off my house. We've been paying extra to pay down principle dramatically over the years and the idea of no longer having a house payment is exciting. I don't have enough in savings to pay it off entirely yet, though. Does it make sense to borrow against my 401K to pay it off? My interest rate is 4.125. Probably not, but I'm just curious.

'

Congrats on getting so close to paying off your mortgage!

That said, I acknowledge there are mental well being considerations, but I don't think paying down a mortgage early makes a tremendous amount of sense. What's the rush? The tax implications could be a mess. Also, 401k's are also a protected investment from things like creditors however a home is not. Additionally, today's mortgages are pretty nice because they are cheap money that hedges your overall portfolio/net worth against inflation.

Just leave your 401k alone, make regular contributions, and only withdraw if you have a horrible life event.


***Michael is not a licensed financial adviser and provides investment advice for entertainment purposes only. Not available in all 50 states. Void where prohibited.***

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I'd argue you shouldn't add extra payments to your mortgage until you've at least paid off high interest debt like CC, and maxed out both your 401k and Roth IRA. Even after that I'd open up a taxable account and buy index funds before I'd pay off my mortgage.

Thanks! As for your spoilered suggestions... We are maxing out two Roths, I'm putting in enough into my company's 401K to get their max match, and we haven't ever carried CC debt. We only had about 10K in student loans combined, which we paid off in our 20s as well.

Personally I'd suggest maxing out your yearly contributions to 401k, on top of the company match.

Popeye_Card wrote:Personally I'd suggest maxing out your yearly contributions to 401k, on top of the company match.

I'm going to start upping my contribution in correlation with my raises. Once we pay off the house, I'll dump all that extra monthly into the 401K as well.

GeddyWrox is a super saver beast! Nice job!

GeddyWrox wrote:I'm down to ~47K left to pay off my house. We've been paying extra to pay down principle dramatically over the years and the idea of no longer having a house payment is exciting. I don't have enough in savings to pay it off entirely yet, though. Does it make sense to borrow against my 401K to pay it off? My interest rate is 4.125. Probably not, but I'm just curious.

I say no. You're swapping one set of loan payments for another, so you haven't actually eliminated the house payment. Depending on the 401k loan terms, that payment may or may not be less than the one you have now. For example, if I took this loan, I'd have to pay 5% interest (to myself), which at the max duration of 5 years/60 months is about $900/mo. And the 401k loan has some worse terms in that if you lose/change your job, you must quickly pay off the entire balance or face a big tax penalty.

In terms of the pure return aspect, keeping your 401k money in external investments is supposed to also be better, though that's less certain. I just think there's not much upside in doing some fancy moves here especially since you're stuck with a payment one way or another.

Michael wrote:GeddyWrox is a super saver beast! Nice job!

I always had a goal of retiring before I hit 60. I don't think I'm going to hit that, but I'll be damned if I'm going to be working into my late 60s.

Popeye_Card wrote:Personally I'd suggest maxing out your yearly contributions to 401k, on top of the company match.

People say this, but the 401k max is $18,000!!!

If you can contribute that (especially on top of more favorable vehicles like a Roth IRA), you're either paid way too much or you are forgoing too much current consumption.

Arthur Dent wrote:

Popeye_Card wrote:Personally I'd suggest maxing out your yearly contributions to 401k, on top of the company match.

People say this, but the 401k max is $18,000!!!

If you can contribute that (especially on top of more favorable vehicles like a Roth IRA), you're either paid way too much or you are forgoing too much current consumption.

While some would probably argue that I make too much, and my wife would certainly argue that we don’t consume enough, I’m still maxing out.