Payoff the home?

[dave123]

Hello. I would really like some advice as I'm seriously considering paying off my home with my TSP. Thanx in advance.

Details:

I owe 33,000 at 4.5%
I'm due to pay this loan off in May of 2018
I mandatory retire in 5 years
Other than the home and one car, I'm currently debt free
I have a current TSP loan (non-residential) with an outstanding balance of 1400. Paying this off now would not be a problem.
Currently, all my TSP (135000) is in G-fund.


I'm considering a 3 year residential TSP loan to pay it off. The biweekly payment would be about 439. I could also choose a 4 year with a payment of 332. The current interest rate at TSP is 2.250%, which of course, would go to me. The home would pay off a couple of months later than it is scheduled to be paid off or a year depending on which I choose, but I would get the 2.250 back instead of 4.5 to the bank. Would that offset the tax break and G-fund growth? I do itemize my taxes because my wife is a contract worker.

I would love to own the home, no more answering to the bank when it comes to picking my insurance, etc. Then again, being taxed 2 times and getting less growth from the money....

[userque]

These may be helpful.?

The TSP Loan Guide - TSP Allocation Guide (http://www.tspallocation.com/tsp-loan-guide/)

TSP loan (http://money.federaltimes.com/tag/tsp-loan/)

Good Luck!


Hello. I would really like some advice as I'm seriously considering paying off my home with my TSP. Thanx in advance.

Details:

I owe 33,000 at 4.5%
I'm due to pay this loan off in May of 2018
I mandatory retire in 5 years
Other than the home and one car, I'm currently debt free
I have a current TSP loan (non-residential) with an outstanding balance of 1400. Paying this off now would not be a problem.
Currently, all my TSP (135000) is in G-fund.


I'm considering a 3 year residential TSP loan to pay it off. The biweekly payment would be about 439. I could also choose a 4 year with a payment of 332. The current interest rate at TSP is 2.250%, which of course, would go to me. The home would pay off a couple of months later than it is scheduled to be paid off or a year depending on which I choose, but I would get the 2.250 back instead of 4.5 to the bank. Would that offset the tax break and G-fund growth? I do itemize my taxes because my wife is a contract worker.

I would love to own the home, no more answering to the bank when it comes to picking my insurance, etc. Then again, being taxed 2 times and getting less growth from the money....

[pmaloney]

You don't have enough info to really comment on but I think that unless you never expect to need your TSP money until age 70 when you will have to begin taking out your annual minimum retirement age distribution. I would not take out any more money from your TSP if you want it to grow because you only have a few years before retirement. I would also look into at least using one of the premium sites or depending on your age investing on more than the G fund because you are not making very much from that. Bottom line is your age and if you know you will work past retirement and how long you thing you will live as well as how much things like Property Tax and Healthcare will increase per year.

Must be nice knowing you only have three years to go to pay off your house. :smile:

Good luck!

[Maricar19]

I hope this article helps you...Pitfalls of Paying Off Your Mortgage Early - ABC News (http://abcnews.go.com/Business/pitfalls-paying-off-mortgage-early/story?id=20459129)

[Maricar19]

I hope this article helps you...Pitfalls of Paying Off Your Mortgage Early - ABC News (http://abcnews.go.com/Business/pitfalls-paying-off-mortgage-early/story?id=20459129)

sorry, the post doubled up...

[FogSailing]

Hi Dave. First, congrats on being in a positive position to pay off your home. IMHO, There ARE A FEW QUESTIONS YOU SHOULD THINK ABOUT. One is "How much do I need to REALLY maintain an enjoyable lifestyle after retirement? Second is "Do I plan to work after retirement? Is more income arriving at some point (say SSI? - when, and how much). Third is "How much do I need to have in savings to feel secure?" I used to watch Suzie Orman religiously every week. She would always have a segment called "Can I Afford it?" There were several times that people in their 40's wanted to take away from their IRA's or retirement accounts for worthy goals. In almost every case she would say "You're Denied" and would list a lot of reasons, mostly focusing on the negative impact of the loan on the person's financial position as a result of "borrowing" from their IRA. You should check out her website. Given your situation, it is worth it to run and then re-run the numbers. All the best to you.

FS

[Maricar19]

Here is another good article...12 Good Reasons Why You Should (and Should Not) Pay Off Your Mortgage Early - Len Penzo dot Com (http://lenpenzo.com/blog/id1131-12-good-reasons-why-you-should-and-should-not-pay-off-your-mortgage-early.html)

[jpcavin]

IMHO, it's not worth taking out a loan to pay off your home. It's only 3 more years. I'd probably be more interested in paying off the car. Just my two cents given the minimal details.

[nasa1974]

Congrats on having only 3 years left on your mortgage. I wouldn't pay off the mortgage early. With only 3 years left I'm guessing the majority of your mortgage payment is principle not interest. So saving on the interest part would be negligible. The bank gets their interest dollars early in the loan. In my opinion the CONS out weigh the PROS. But you have to look at the benefits for you and your situation (financial needs now vs. future needs). Good luck.

[Shamus13]

With only 3 years left I'm guessing the majority of your mortgage payment isprinciple not interest. So saving on the interest part would be negligible.

Exactly what I was going to say. You've already paid your pound of flesh years ago. I don't know what your APR is for your mortgage but the savings won't be huge since your principle is so small now. I would just pay extra each month to chip away at the principle quicker if that is something you could afford.

[dave123]

Thanx much. Lots of good advice and good links that I was able to read. I've decided to let it ride and not pay off the home early with the TSP. I would really like to own the home outright, but as many of you pointed out, the cons outweigh the pros at this time.

I think the kicker is what nasa1974 pointed out, that I've already paid the lions share of the interest. But it was looking like a no-go even before reading that.

Thanx again

dave

[mbrogz3000]

Without knowing the length of the loan, but knowing you would pay it off by 05/2018, I'm going to assume that you've already paid off most of the interest, and at this point your mostly principle. The interest remaining at this point is going to look like maybe $1k to $3k remaining, again assuming. The 4.5% interest paying to the bank at this point is assumed irrelevant, as the unrecoverable damage has already been done.

So if you have $135,000, assuming no more contribution payments are getting dumped into it, you may grow this to $151,000 at 2.25%, making another $16,000.

If you take out the TSP loan, you'll have $102,000 in TSP, @ 2.25% will make $12,000.

I think if you take out the home-payoff loan, your giving up approximately $1000 that you could be making in the TSP. Need to factor in that $50 loan fee as well.

Follow my approach, and fill in the gaps that are missing.

[Valkyrie]

re-finance the house for the most u can. put that money in the bank use as needed to make payments, interest deduct on taxes and wait for the rise in interest rates. eventually the banks money will be making money for u when the high rates hit.
if there is a housing crash again u take the lost, if there is a mortgage the bank takes the lost, etc.

[Valkyrie]

The Benefits of Having a Big, Long Mortgage (http://www.edelmanfinancial.com/education-center/articles/1/11-great-reasons-to-carry-a-big-long-mortgage)