Would it be wise to pay off my second mortgage with my 401k?

[Pakman]

I'm thinking about cashing out my 401k from my previous job to pay off my second mortgage. I have about $60K in there right now. Would I still be taxed on it if I use it to pay my second mortgage? I know there will most likely be a penalty. I think it's 10%, but I can live with that. My second mortgage is killing me.

 

[Tooncesthedrivingcat]

What's the rate on your 2nd? Do you have a PPP?

 

[ch33zw1z]

You will be both taxed and penalized, just a quick google returned http://wps.fidelity.com/401k/pfp/rp/taxes.htm

 

[iamwiz82]

Originally posted by: Pakman
I'm thinking about cashing out my 401k from my previous job to pay off my second mortgage. I have about $60K in there right now. Would I still be taxed on it if I use it to pay my second mortgage? I know there will most likely be a penalty. I think it's 10%, but I can live with that. My second mortgage is killing me.

It's taxed as income PLUS 10%, not even taking into account what $60,000 would accrue in interest over the years.

 

[Turin39789]

Originally posted by: iamwiz82

Originally posted by: Pakman
I'm thinking about cashing out my 401k from my previous job to pay off my second mortgage. I have about $60K in there right now. Would I still be taxed on it if I use it to pay my second mortgage? I know there will most likely be a penalty. I think it's 10%, but I can live with that. My second mortgage is killing me.

It's taxed as income PLUS 10%, not even taking into account what $60,000 would accrue in internet over the years.

You can accrue internet on moneys??!

Just when I thought I had this 401k stuff figured out. How do I set it up to earn internets?

 

[Dirigible]

Originally posted by: iamwiz82

Originally posted by: Pakman
I'm thinking about cashing out my 401k from my previous job to pay off my second mortgage. I have about $60K in there right now. Would I still be taxed on it if I use it to pay my second mortgage? I know there will most likely be a penalty. I think it's 10%, but I can live with that. My second mortgage is killing me.

It's taxed as income PLUS 10%, not even taking into account what $60,000 would accrue in internet over the years.

Yup, you could lose out on five or six internets if you take it out.



Edit: Damn you, Turin39789!!!!

Another edit: It's almost never a good idea to withdraw from 401k early. You'll be taxed, you'll be penalized, you'll eat ramen when you're old and have no money. There's a reason creditors can't get at your 401k - the gov't actually realizes how important this dang money is.

Why the heck do you want to pay off your 2nd with it?

 

[Pakman]

Originally posted by: Tooncesthedrivingcat
What's the rate on your 2nd? Do you have a PPP?

It's prime + 1%. It's a line of credit.

 

[Pliablemoose]

#1. WTF were you thinking about taking out a 2nd mortgage?

#2. Cashing in your 401K is dumber than taking out a 2nd mortgage.

 

[iamwiz82]

Originally posted by: Turin39789

Originally posted by: iamwiz82

Originally posted by: Pakman
I'm thinking about cashing out my 401k from my previous job to pay off my second mortgage. I have about $60K in there right now. Would I still be taxed on it if I use it to pay my second mortgage? I know there will most likely be a penalty. I think it's 10%, but I can live with that. My second mortgage is killing me.

It's taxed as income PLUS 10%, not even taking into account what $60,000 would accrue in internet over the years.

You can accrue internet on moneys??!

Just when I thought I had this 401k stuff figured out. How do I set it up to earn internets?

I have no idea what you are talking about

 

[coaster831]

It's pretty much the worst decision you could make.

What's the rate/term/monthly payment on it? You'd probably be better off with a no-fee, 5.99% fixed APR 20 year refi through penfed.org

EDIT: Assuming you met the T&C, mostly that your LTV < 80%.

 

[TheKub]

Originally posted by: iamwiz82
It's taxed as income PLUS 10%, not even taking into account what $60,000 would accrue in internet over the years.

Best typo EVAR!

 

[piasabird]

I would not do that. However, if you can not make the payments you may want to look at your situation in a different light. If you can afford the payments on the house maybe you should just try to tighten the belt a little and spend less money. Your savings may be giving you a tax advantage. Sometimes you can borrow from a retirement plan pay off your debt and pay back the savings plan without having to pay the tax.

Things to look at:
Does the real estate increase in value every year?
Is that % of increase higher than the interest rate on the loan? Should be pretty low. 6%-8%.

If you plan on selling the house it might make sense to pay it off earlier, but if houses are not selling well in your area and the housing market looks grim for the future you could be putting your savings at a risk. What if you cant sell the house or the value of real estate goes down? This could be the trend for the future.

Loans tend to be front loaded so you pay more interest than principle in the beginning. So reducing the principle by as mush as $10,000 could significantly reduce the amount of interest you pay over say a 30 year mortgage. Still there is a risk you will not get back a significant return on your investment if the real estate market takes a dive.

 

[Pakman]

Originally posted by: Pliablemoose
#1. WTF were you thinking about taking out a 2nd mortgage?

#2. Cashing in your 401K is dumber than taking out a 2nd mortgage.

I'm sorry, I wasn't here for a lecture, just some advise on my current situation.

 

[crystal]

Originally posted by: Pakman

Originally posted by: Pliablemoose
#1. WTF were you thinking about taking out a 2nd mortgage?

#2. Cashing in your 401K is dumber than taking out a 2nd mortgage.

I'm sorry, I wasn't here for a lecture, just some advise on my current situation.

I think that is his advice. take it.

 

[Tooncesthedrivingcat]

Originally posted by: Pliablemoose
#1. WTF were you thinking about taking out a 2nd mortgage?

#2. Cashing in your 401K is dumber than taking out a 2nd mortgage.

I'm assuming he financed near 100% when he purchased.

 

[Pakman]

It's not that I can't afford to pay it, but I'd rather keep the $700 I pay on it every month.

 

[spidey07]

No freaking way. That would be a TERRIBLE idea. Why are you even considering touching cashing your 401k unless you like just losing tons of money just "because". You would literally be throwing away hundreds of thousands of dollars in gains.

Look at it this way, the mortgage interest is deductible lowering the effect rate considerably. You are probably MAKING money on that mortgage depending on real estate appreciation in your area.

This is terrible, this idea.

 

[Tooncesthedrivingcat]

Do you know how much equity you have right now?

When was your last appraisal?

 

[Turin39789]

Originally posted by: Pakman
It's not that I can't afford to pay it, but I'd rather keep the $700 I pay on it every month.

You could cash out the 401k to pay the mortagage, and then pay $3000 a month into your 401k to catch up.

 

[Pliablemoose]

Originally posted by: crystal

Originally posted by: Pakman

Originally posted by: Pliablemoose
#1. WTF were you thinking about taking out a 2nd mortgage?

#2. Cashing in your 401K is dumber than taking out a 2nd mortgage.

I'm sorry, I wasn't here for a lecture, just some advise on my current situation.

I think that is his advice. take it.

If you want someone to agree with you, you should have a mirror in the bathroom, go talk to it, and don't post a question you won't like the answer to.

The whole time/value of money thing isn't something you can argue your way out of.

 

[jdobratz]

What about taking a loan out against your 401k if your plan allows it? That way you pay off the loan where you are paying a bank interest and pay that interest to yourself instead? I am not an expert in this, but that seems like a win-win situation to me.

 

[DBL]

Originally posted by: Pliablemoose
#1. WTF were you thinking about taking out a 2nd mortgage?

#2. Cashing in your 401K is dumber than taking out a 2nd mortgage.

There are often good reasons for taking a second mortgage. Why make such a statement?

OP, now that the rate has just dropped 3/4 of a point, why not look into locking the rate of your 2nd mortgage?

Also, have you adjusted your withholding based on the interest you are paying on your 2nd mortgage every year? That could supply you with a lot of breathing room.

 

[coaster831]

Originally posted by: DBL

Originally posted by: Pliablemoose
#1. WTF were you thinking about taking out a 2nd mortgage?

#2. Cashing in your 401K is dumber than taking out a 2nd mortgage.

There are often good reasons for taking a second mortgage. Why make such a statement?

OP, now that the rate has just dropped 3/4 of a point, why not look into locking the rate of your 2nd mortgage?

Also, have you adjusted your withholding based on the interest you are paying on your 2nd mortgage every year? That could supply you with a lot of breathing room.

All excellent points.

 

[Xavier434]

Originally posted by: DBL

Originally posted by: Pliablemoose
#1. WTF were you thinking about taking out a 2nd mortgage?

#2. Cashing in your 401K is dumber than taking out a 2nd mortgage.

There are often good reasons for taking a second mortgage. Why make such a statement?

OP, now that the rate has just dropped 3/4 of a point, why not look into locking the rate of your 2nd mortgage?

Also, have you adjusted your withholding based on the interest you are paying on your 2nd mortgage every year? That could supply you with a lot of breathing room.

:thumbsup:


OP, the only other thing I could add is simply saying that you should never give up your retirement for something else short of refinancing your retirement funds into another retirement plan which will get you more money in the end. When it comes to mortgages, there is nothing wrong with paying them off slowly. Just jump through any loopholes you find along the way such as this recent percentage drop to lower your payments and you will be fine.

 

[Pakman]

Ok, so touching my 401k will be out of the question. I guess it's time to look into refinancing. Any recommendations there? Where should I start? Should I get an appraisal first?