TSP for House Down Payment

**ChemEng** · 09-06-2007, 03:04 PM

Originally Posted by FundSurfer

Two scenarios: 1 you get a loan from TSP and 2 you get a loan from your bank. Both interest rates are the same. How is there any tax consequence from using your TSP rather than your Bank? In the case of the TSP loan you are paying the interest to yourself into your account. The account balance at the end of the loan would be the same if you had the money invested in the g-fund (assuming interest in G fund stays the same which it won't - could go up or down) or had given yourself a loan.

Youre right.

I have always made the comparison between taking the loan from TSP versus not taking the loan. In that case, the tax issue is important. But if the end state is definately a loan and its a question of who will fund it, then its probably a wash.

(I say probably because I dont know if the interest paid to repay a TSP residence loan is tax deductible. I would assume that it is since it would be funding a residence, but I dont know if that changes at all since you are repaying yourself that interest.)

The other downside (although not tax related) is that if you take a 15 year TSP loan out, it keeps you tied to government work for those next 15 years. That can be a big issue depending on levels of work satisfaction, health, et al.

**FundSurfer** · 09-06-2007, 03:18 PM

Yeah, I'd not want that 15 year loan unless I was taking it to buy a retirement home the year before I retire. The I'd expect to be substantially in safer G fund anyway and I'd not have to worry about repayment if I left the government. Repayment could be done by just getting another more expensive loan and would be a speed bump and not a deal breaker.

**Birchtree** · 09-06-2007, 04:08 PM

Gilligan,

I'm only interested in waterfront mountain lots or waterfront mountain homes. I bought 5.23 acres here in the Gator Nation without the benefit of interest cost deductions - I don't have to do that again. I will use a home equity line of credit as well as stock sales to help defray the interest rate costs. The benefit of having access to a stock portfolio is that you have immediate liquidity. My New Hampshire brother-in-law wants to park his RV on my land during the winter months. I have no plans to sell the land - but if the right price came along I could be tempted, otherwise it becomes part of my legacy. I didn't plan for the land to be an investment but it make work out that way. There are several deer that have a trail on it leading to a water hole. Because of land comprehensive zoning these five acre tracts are hard to own. My TSP will remain intact until I retire and then I'll start the process of automatic withdrawal into a Roth IRA via a regular IRA.

**BeaverState** · 09-06-2007, 07:36 PM

Say you're making max contributions of 15 percent. Now you take out a TSP loan at say 5 percent interest. Aren't you now able to contribute more than the 15 percent max contribution per year? 15 percent contribution plus the 5 percent interest = ??? Am I correct in this line of thinking?

**GGal** · 09-06-2007, 11:54 PM

Hey, 15% max is way old news.

Max this year is $15,500 plus $5,000 catch up.

But your train of thought may be correct, hard to tell exactly what you mean.

Let's say you have an outstanding loan that requires principal and interest payment of $100 per pay period.

You are still allowed to make the max contribution of $15,500, and all the while, you are paying back $100 per pay period, some of which is principal, and some interest.

Luckily the interest payment will help make up for some of that you lost by not having the principal in the account.

The loan repayment is just that, a repayment of what you took out. So it has no effect on the max contribution you are allowed to make.

GGAL

**BeaverState** · 09-07-2007, 12:07 AM

One way to look at TSP loans is you don't pay any interest to the bank. So if you would have had a 8 percent second mortgage, and your new TSP loan charges 5 percent, you in effect come out 13 percent ahead. (8 percent you would have paid to the bank plus [+] 5 percent you pay yourself equals 13 percent.) Not a bad return on your money.

Not a financial strategy you want to do, but better than giving it all to the bank.

**Gilligan** · 09-07-2007, 06:44 AM

Birchtree,
I apologize for getting your water front property confused with an ocean front property.

BeaverState,
Good point!

Berimbauone,
The main thing is to stop paying rent, your just making your landlord rich (I know because I am a landlord). A home is one of the best investments you can have. Just don’t go overboard and get a mortgage that you can’t afford. Property taxes and insurance add up and they do tend to increase.

I see too many of my fellow employees renting a nice house or apartment and lease their vehicle because its convenient or they have to keep up with the Joneses’. By the time they retire, they will have $0 net worth or even a negative net worth. Many of these folks will keep on renting until they pass away. IMO everyone should have their home paid for before they retire. I have a humble home but it’s paid for, all of my vehicles are paid for and I’m building a new house with cash. Financial freedom is a good feeling, if I can increase my cash flow some more, I will retire early!

**Berimbauone** · 09-07-2007, 03:08 PM

Originally Posted by Gilligan

The main thing is to stop paying rent, your just making your landlord rich (I know because I am a landlord). A home is one of the best investments you can have. Just don’t go overboard and get a mortgage that you can’t afford.

Wow, this is all very good information. Thank you all for the great input.

My wife and I have no problem in living within our means; we keep our debt low and drive a modest and efficient car.

We do want to stop paying rent and feel we're going to be able to afford a home pretty soon. Fortunately I'm in a career program where I will be able to step up two gs levels by the end of FY 2008, and my wife is ready and itching to get back to work, so there's better (financial) times ahead.. We would actually be looking to buy a smaller house, just something that would be nice and cozy and we can call our own.

Once the time comes that we have enough in our TSP to make a decision this is all going to be very helpful. I'll keep reading this thread for more good info. thx