I did that after I had refinanced my home when the interest rates dropped below 3%. I had to pay taxes on the money that was withdrawn as it was considered income. But here in Sou. Cal. home prices were appreciating faster than the stock market and with much less risk of a sudden "correction" , so it turned out to have been a wise choice. The amount that I had to pay in income tax was offset within just a few months in home prices gain and by the end of about a year the gain was about equal to the amount that I withdrew to pay off the mortgage balance.
Run some numbers and see what makes sense for you.
Shortly before I retired , my employer did away with the defined benefit pension for all new hires . They bumped up the 401k to make up for it . All of us already in the pension system were unaffected except that we still had the old version of the 401k . I've read that a lot of companies are doing something similar .My current employer offers both and I've been fully vested in both for a long time. Honestly, that and the insurance coverage are the only reasons I'm still around; if they dissolve the pension plan I will have to give serious thought on whether it's still worth sticking around.
It a no brainer.I am seriously kicking around the thought of skimming a little off of the top of a 401(k) plan to use to pay off my mortgage... and freeing up that much of my paycheck every month. Basically, $29,000 would pay off my house.
I don't *need* this 401(k) for retirement, I will have a full pension from where I work now. This 401(k) was from my first two jobs, early in my career. I have it invested with Vanguard, and literally play around with it.
The 401(k) has literally doubled in the past two years.... and how much of that gain could be lost in one market correction? Instead of it disappearing in a market correction, I could pay off my house and still literally have something to show for it, as the money that I pull out of the 401(k) to pay off my house will still be making money, as my home continues to increase in value as well.
Of course, the other side of this is the loss of that $29,000 investment over time... for the next 15 years.
On the back end of the mortgage which he is at, his payments would basically be going to the principle. Makes no sense to pay off the mortgage. There is also the penalty he would have to deal with for withdrawing early on his 401k. That would be atleast 10 percent, loss of potential growth on the $29k and $29k added to his income which would be taxed. It could push him into the next higher tax bracket.It a no brainer.
Pay it off, look at it as an investment.
You owe 29,000. If you pay it off right now, it only cost you $29,000.
If you pay it off over time it is going to cost you $38,612 over the 15 years if your interest rate is 4%
Now you do have a the penalty for the withdrawal which you then have to subtract or do as another says and take out a loan on the 401k to pay it off. Either way you come out ahead, way ahead since you say you really dont even need the 401K
True you get a small deduction on your income taxes for that but we are talking general numbers. It always pays to pay it off and you will have an extra $10,000 of interest you didnt have to pay minus the penalty if you dont take a loan against the 401k. That is an investment was as it is, savings $10,000 in interest.
I'm still on my first cup of coffee in the morning but since you are thinking about it, go with it and get rid of the mortgage, you could even split the difference in savings by not paying the mortgage and contribute half back into the 401K even month if you dont do a loan.
To me anything is better then having a 15 year loan where almost a third of it your paying a fee to the bank for lending it to you. (interest)
To me having a 15 to 30 loan is insane. though I understand we all do it, its always best to pay it off first. I rather be my own bank, just like Chase and CitibankPaid off house is overrated. You still pay taxes, insurance, utilities, repairs, all that. Principal and Interest payment really isn't that big. I would do the opposite and lever the house up and invest. Lets say you get a new loan for 130k, thats only 530 a month and could let you invest 100k.
100k in quality dividend paying stocks and utilizing a covered call strategy could net you pretty good gains, 10-30%.
My post has all the correct numbers in it, a few posts up. We can all differ on thoughts, for me, debt is dumb. "Potential growth" is speculation much like "unrealized gains" using your house vs guaranteed income.On the back end of the mortgage which he is at, his payments would basically be going to the principle. Makes no sense to pay off the mortgage. There is also the penalty he would have to deal with for withdrawing early on his 401k. That would be atleast 10 percent, loss of potential growth on the $29k and $29k added to his income which would be taxed.
Potential growth is only a tiny bit of speculation. If that speculation falls apart, so does the whole economy, so does everyone's retirement plans.My post has all the correct numbers in it, a few posts up. We can all differ on thoughts, for me, debt is dumb. "Potential growth" is speculation much like "unrealized gains" using your house vs guaranteed income.
Depends on the debt. Debt is investing with other people's money.We can all differ on thoughts, for me, debt is dumb. "Potential growth" is speculation much like "unrealized gains" using your house vs guaranteed income.
Any last payment is a good feeling …I’ll take the contrarian view - pay it off.
Here’s why: risk tolerance and asset allocation are the bedrock of any financial plan. Most of the advice here is how to maximize returns for the OP’s cash flow and investment portfolio while completely ignoring his risk tolerance. Covered calls? Options? These are sophisticated tools that are not suitable for most investors. Sure, we can analyze rates of return and nuanced, effective, portfolio management. None of that matters.
The OP stated, clearly, that he would feel better with a paid off house. He will sleep better with it paid off.
That’s a very clear, and very different than the presumptive, risk tolerance, that is missing from all the other posts.
We’re talking $29,000 here, right? Pay it off, sleep well, and don’t worry about a few percentages one way or the other on what is really, economy car money, not millions in a portfolio.
Who wouldn't feel good and sleep better with a paid off house?The OP stated, clearly, that he would feel better with a paid off house. He will sleep better with it paid off.
Depends on if there's any penalty. If you have to pay an early withdraw penalty it is not worth it IMO.I’ll take the contrarian view - pay it off.
Here’s why: risk tolerance and asset allocation are the bedrock of any financial plan. Most of the advice here is how to maximize returns for the OP’s cash flow and investment portfolio while completely ignoring his risk tolerance. Covered calls? Options? These are sophisticated tools that are not suitable for most investors. Sure, we can analyze rates of return and nuanced, effective, portfolio management. None of that matters.
The OP stated, clearly, that he would feel better with a paid off house. He will sleep better with it paid off.
That’s a very clear, and very different than the presumptive, risk tolerance, that is missing from all the other posts.
We’re talking $29,000 here, right? Pay it off, sleep well, and don’t worry about a few percentages one way or the other on what is really, economy car money, not millions in a portfolio.