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I was planning to pay off a $17,500 401K loan in March using my annual bonus. Is it advantageous to pay it off now, while the market is low?
I would draw from my HELOC to pay it off. Since it looks like the prime will stay level for a while longer, I will essentially be borrowing 18K at 5.24% (prime + 1.99) over the next 7 months, making monthly payments of $1500 with a lump sum payoff in March.
Is there an advantage to paying it off now verses waiting?
Sure, that has been the plan. I just am not sure how it works with regard to the value of stocks at the time I pay off the loan. Also, since this was to buy a house, I took a very long term so that I could pay off the HELOC first, then the 401K loan second. The result is that I have a very small payment ($150/mo).
I could pay off the loan in full now and then borrow it back in 15 days at a shorter term so that I can make $1500/mo payments instead of the $150. Really I'm only 6 months from just paying it off altogether either way.
Not a big fan of borrowing against your 401 as you lose a lot of growth as you pay yourself a very small return. But since you have already done it at the best possible time sure why not pay back now that it's very low.
I think your question is do you think the market will come back more than 3% (5.24 interest HELOC loan/7 months) over the next 7 months.
If so, then pay it back with a HELOC, otherwise keep the 401k loan is how I would look at it.
I hope somebody corrects me if I am wildly off.
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