Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
Oops, how the hell did that double post happen? sorry to all. it was suppose to be this one...
One more thought that might benefit you in your situation, and that would be borrowing the money from your gramps, or owner financing.
Going back to my daughter's condo, her interest rates have adjusted several time over her time of ownership, and we would like to refinance at a lower rate. She owes about $90k, about what you owe.
I have been watching rates, waiting for them to come down, which they refuse to do, sooo, I'm going to pay off the loan and finance it myself. The loan is in my name since I co-signed for her when she purchased it, however her name is on there Trust Deed, and she makes the payments and gets the tax credit.
I could just pay it off and let her make payments to me, but here's the drawback. If the Deed of Trust isn't in her name, filed with the County, she gets no tax credit, and we're back to the IRS declaring it a gift. So I contacted a loan servicing company (Name upon request) who will service the loan. For a $50.00 set up fee, they do all of the paperwork to start the process, and she pays them monthly. After her check clears, they send me the money. There is a $15.00 a month service charge, which is deductible, but that includes all tax accounting information. At the end of the year, they send out a 1099 form with all tax information, just like any other lending institution. No fuss, no muss....
For an additional $250.00, they do all of the paperwork normally done by escrow, at a fraction of the cost. There are no unnecessary fees, which is why it's far cheaper than an Escrow company. No PMI is required, since it's a home we have already owned for five years, no credit checks, etc. He payment will drop to just under half of what it is now, so there shouldn't be any problem with her making the payments. For for a total cost of about $300.00, were on our way with a new loan. She gets a 5.25% rate, and I get more than CD's pay. It's a win win...
. My daughter bought a condo about five years back, and borrowed the money from her 401k. That way, you pay yourself the interest, and will still have the 401k when it's over. You continue to pay into the account, but the majority goes to pay back the loan, until it's paid back. It took my kid about five years to pay it back, but her account is now paid off, and her 410k remains intact.
But if you do this, you lose time that that money would sit in the 401K and compound away. So even though she restored all the funds within 5 years, that's 5 years (or less since the money slowly trickled back into the 401K) that those funds were not available to compound away. This is even more critical if the borrower is young as those funds have far more time to compound.
$10K alone, given 8% growth will compound to nearly $150K in 35 years. If you loaned it out and put it back 5 years later, you would only get 30 years of growth and that would only be $100K. So borrowing $10K will cost you $50K in accumulated earnings in the long run. Borrow $20K at a young age and that's potentially $100K in earning you are losing out on from the total balance.
Math might need a little adjustment because you are slowly paying yourself back, but my point is even a 401K loan to be paid back should be avoided at all costs.
Last edited by BostonMike7; 07-17-2013 at 10:36 AM..
But if you do this, you lose time that that money would sit in the 401K and compound away. So even though she restored all the funds within 5 years, that's 5 years (or less since the money slowly trickled back into the 401K) that those funds were not available to compound away. This is even more critical if the borrower is young as those funds have far more time to compound.
$10K alone, given 8% growth will compound to nearly $150K in 35 years. If you loaned it out and put it back 5 years later, you would only get 30 years of growth and that would only be $100K. So borrowing $10K will cost you $50K in accumulated earnings in the long run. Borrow $20K at a young age and that's potentially $100K in earning you are losing out on from the total balance.
Math might need a little adjustment because you are slowly paying yourself back, but my point is even a 401K loan to be paid back should be avoided at all costs.
Correct, you still lose a little by borrowing from the 401K, by in the kids case, she was very young, so has many years to make that up.
Things have since changed on that original advice since we have we have an incompetent administration who loves to kill off companies and destroy jobs. It's not safe to borrow from 401k today with the uncertainty of the job market.
Today my advice would be, borrow only if your choice is to borrow from 401K, or death. No other reason is good enough...
But if you do this, you lose time that that money would sit in the 401K and compound away. So even though she restored all the funds within 5 years, that's 5 years (or less since the money slowly trickled back into the 401K) that those funds were not available to compound away. This is even more critical if the borrower is young as those funds have far more time to compound.
$10K alone, given 8% growth will compound to nearly $150K in 35 years. If you loaned it out and put it back 5 years later, you would only get 30 years of growth and that would only be $100K. So borrowing $10K will cost you $50K in accumulated earnings in the long run. Borrow $20K at a young age and that's potentially $100K in earning you are losing out on from the total balance.
Math might need a little adjustment because you are slowly paying yourself back, but my point is even a 401K loan to be paid back should be avoided at all costs.
I think this is the correct way to look at, but you forget to examine the cost of the mortgage loan. For example, if your mortgage loan is 5%, then the compound interest you lose on your 8% mortgage is actually closer to 3%, no? (perhaps, my math is not completely correct). Nonetheless, you have to compare your 401k returns with your mortgage rate, not just look at your 401K rate of return.
Another thing to take into consideration is that once you pay off your house, it is yours. Once your house is yours, it is hard to lose. You will essentially have a roof over your head for the rest of your life.
A 401k is really not yours, until you cash it out. You could lose it to the market. Therefore, there is a risk/return trade-off that someone is faced with.
The way real estate taxes soar over time the fact you paid off your mortgage means little as far as having a roof over your head.
We have homes that were bought and paid off over the decades that were 40-50k back then in long island and today the average tax bill is 15-18k a year.
I think this is the correct way to look at, but you forget to examine the cost of the mortgage loan. For example, if your mortgage loan is 5%, then the compound interest you lose on your 8% mortgage is actually closer to 3%, no? (perhaps, my math is not completely correct). Nonetheless, you have to compare your 401k returns with your mortgage rate, not just look at your 401K rate of return.
Another thing to take into consideration is that once you pay off your house, it is yours. Once your house is yours, it is hard to lose. You will essentially have a roof over your head for the rest of your life.
A 401k is really not yours, until you cash it out. You could lose it to the market. Therefore, there is a risk/return trade-off that someone is faced with.
Good point. I failed to take that into consideration.
I think this is the correct way to look at, but you forget to examine the cost of the mortgage loan. For example, if your mortgage loan is 5%, then the compound interest you lose on your 8% mortgage is actually closer to 3%, no? (perhaps, my math is not completely correct). Nonetheless, you have to compare your 401k returns with your mortgage rate, not just look at your 401K rate of return.
Another thing to take into consideration is that once you pay off your house, it is yours. Once your house is yours, it is hard to lose. You will essentially have a roof over your head for the rest of your life.
A 401k is really not yours, until you cash it out. You could lose it to the market. Therefore, there is a risk/return trade-off that someone is faced with.
Well technically the 401k is as much "yours" as the house. What could fluctuate is the value (of either). The liihood of losing your entire 401k is slim, so I'm not sure there is that much benefit of the real estate over the 401k. Ideally, they would not be mutuall exclusive of one another.
If you are paying a high rate of interest (like 6%+) then refinance it into a 15 year fixed rate. The penalties on withdrawing your 401k would be mindblowing. If you are reasonably diversified over the next 15 years it will return a far higher rate then what you pay on the mortgage, and that is before adjusting for the insane taxes and penalties on trying to withdraw it all.
Doing this would have an impact on your personal networth in the realm of a 30 to 50k loss over the next decade. So ask yourself, do you really want to flush 3 to 5 grand down the toilet each year?
Don't do it, and rep this up, because it saved you some serious cash
Please register to post and access all features of our very popular forum. It is free and quick. Over $68,000 in prizes has already been given out to active posters on our forum. Additional giveaways are planned.
Detailed information about all U.S. cities, counties, and zip codes on our site: City-data.com.
Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
