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Thread: Payoff the home?

  1. #1

    Default Payoff the home?

    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....


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  3. #2

    Join Date
    Jan 2014
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    Default Re: Payoff the home?

    These may be helpful.?

    The TSP Loan Guide - TSP Allocation Guide

    TSP loan

    Good Luck!

    Quote Originally Posted by dave123 View Post
    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....
    "In the land of idiots, the moron is King."--Unknown

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  5. #3

    Join Date
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    Default Re: Payoff the home?

    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.

    Good luck!

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  7. #4

    Default Re: Payoff the home?

    Emotions should never play a role in one's investing strategy!
    No to Greed...No to Fear!
    http://share.robinhood.com/mariloc1

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  9. #5

    Default Re: Payoff the home?

    I hope this article helps you...Pitfalls of Paying Off Your Mortgage Early - ABC News

    sorry, the post doubled up...
    Emotions should never play a role in one's investing strategy!
    No to Greed...No to Fear!
    http://share.robinhood.com/mariloc1

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  11. #6

    Join Date
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    Default Re: Payoff the home?

    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
    Last edited by FogSailing; 07-12-2015 at 07:55 AM. Reason: typo
    FogSailing
    Try to learn something about everything and everything about something.

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  13. #7

    Default Re: Payoff the home?

    Emotions should never play a role in one's investing strategy!
    No to Greed...No to Fear!
    http://share.robinhood.com/mariloc1

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  15. #8

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    Default Re: Payoff the home?

    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.

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  17. #9

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    Default Re: Payoff the home?

    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.
    May the force be with us.


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  19. #10

    Default Re: Payoff the home?

    Quote Originally Posted by nasa1974 View Post
    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.

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  21. #11

    Default Re: Payoff the home?

    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

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  23. #12

    Default Re: Payoff the home?

    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.

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