A friend of mine is talking about borrowing money out of her 401K to refinance to a lower rate. According to her, those are the points to support her decision:
1. 401K is not performing. As it is managed by her employer’s designated money manager, there are only a few mutual funds to invest. None of them except fixed income fund are not losing money.
2. She has a mortgage loan about 40k over the confirming loan limit, which prevents her to take advantage of the current better rate.
3. If she borrows 40k from 401k and pay back in 5 years, she needs to pay less than $700 per month to herself in this 5 years. In the 6th year, the loan will have already been paid off.
4. If she uses this 40k to bring down her loan to the confirming loan range and brings her rate from about 6% to 5%, she saves monthly payment about $550, which she enjoys up to 30 years.
She asks my opinion. As I think about it, it makes sense to me. But I want to check with fellow Piggs with potential fallacy in it, before I agree with her.
Do you think it makes sense, or do you think it is not the time to put more money into a house?
My 401(k) allows me to borrow up to half for a first-time home purchase. I would receive 5% interest when I pay back the loan to my account.
So check what the interest rate is on the loan. The only drawback is that the amount you take out will reduce your overall 401 (k) balance, lessening the effect of compound interest toward your future retirement goals. Probably not an issue as long as returns are as abysmal as right now!
My 401(k) allows me to borrow up to half for a first-time home purchase. I would receive 5% interest when I pay back the loan to my account.
So check what the interest rate is on the loan. The only drawback is that the amount you take out will reduce your overall 401 (k) balance, lessening the effect of compound interest toward your future retirement goals. Probably not an issue as long as returns are as abysmal as right now!
My 401(k) allows me to borrow up to half for a first-time home purchase. I would receive 5% interest when I pay back the loan to my account.
So check what the interest rate is on the loan. The only drawback is that the amount you take out will reduce your overall 401 (k) balance, lessening the effect of compound interest toward your future retirement goals. Probably not an issue as long as returns are as abysmal as right now!
My 401(k) allows me to borrow up to half for a first-time home purchase. I would receive 5% interest when I pay back the loan to my account.
So check what the interest rate is on the loan. The only drawback is that the amount you take out will reduce your overall 401 (k) balance, lessening the effect of compound interest toward your future retirement goals. Probably not an issue as long as returns are as abysmal as right now!
