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Thread: General Purpose Loan to pay-off mortgage??

  1. #1

    Default General Purpose Loan to pay-off mortgage??

    Hello,

    Various mortgage calculators indicate I can pay-off my mortgage in a little over a year by taking out the max allowed by a General Purpose loan, what I have in savings and paying extra principal each month for the next 14 months. By doing so I would save approx 50k in interest. We are in year 13 of a 30 year loan. I am 57 and got started late in federal employment and TSP max contributions.

    I believe I have heard people say don't take out loans because it cripples the TSP growth which I understand; returns on 50% rather than 100%. I have 65k in the TSP account and can take out a max loan of 27k. I would set up the repayment to occur over 5 years and could probably make the period shorter.

    I know there are always variables, but the prospect of saving 50k in interest and having my house pay off in 14 months is very appealing. Your feedback would be very appreciated. Thank you.


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  3. #2

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    Default Re: General Purpose Loan to pay-off mortgage??

    It is commendable that you would like to pay off your mortgage. It seems that is the last thing on most people's minds today. However, in your case, there are probably better options out there.

    How about refinancing to a 15 year? Rates are at all time lows right now. A few extra payments a year could knock down the principal in a hurry - likely less than 13 years and still save you a ton on interest over the long run. Saving $50k in interest now would not be of much use if you still owe $27k in a TSP loan.

    I'd say save the TSP loan for disasters only, especially with $65K in your TSP account at 57. (Perhaps you have other retirement accounts from past employment?) Without knowing anything else about you besides your age, you'd be better off making catch up contributions to TSP.

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  5. #3

    Default Re: General Purpose Loan to pay-off mortgage??

    Thank you very much for your response. A few more variables in my situation... I do not have any other retirement funds except for the TSP, SS and my Federal pension. My wife works and is 12 years younger so, unless something unforeseen happens, we will have her income for several years after I retire. My concern is the economy, a growing potential for a recession or even a depression and the specter of increasing inflation. It seems that what money I can access isn't going to be as valuable in the coming years and the idea of having secure housing is attractive. My wife and I live modestly and with only property taxes and ins to pay we would see increased cash flow without a mortgage payment. The TSP loan would be paid back in 5 years which is about the time I want to look at retirement. My SS and pension income should be approximately $2700.00 and my wife's income is approx 3k net a month. So from a cash flow stand point we should be in good shape. I'm in the L2040 fund and have actually thought about moving to a more conservative fund given my age and my concern with the markets/economy. I suppose it is like most things.... there is a gamble either way. Saving 50k in interest on the loan and owning our home seems more solid to me than what might happen in the coming months or years. More feedback is welcome!

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  7. #4

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    Default Re: General Purpose Loan to pay-off mortgage??

    Quote Originally Posted by wetradio View Post
    Hello,

    Various mortgage calculators indicate I can pay-off my mortgage in a little over a year by taking out the max allowed by a General Purpose loan, what I have in savings and paying extra principal each month for the next 14 months. By doing so I would save approx 50k in interest. We are in year 13 of a 30 year loan. I am 57 and got started late in federal employment and TSP max contributions.

    I believe I have heard people say don't take out loans because it cripples the TSP growth which I understand; returns on 50% rather than 100%. I have 65k in the TSP account and can take out a max loan of 27k. I would set up the repayment to occur over 5 years and could probably make the period shorter.

    I know there are always variables, but the prospect of saving 50k in interest and having my house pay off in 14 months is very appealing. Your feedback would be very appreciated. Thank you.
    Saving 50K in interest is great over the long term but in the short term it doesn't become part of the calculation, because it doesn't mean money in your pocket or savings now. The big question is without your TSP will you have enough money to retire on? Right now $65K earning 7% is $4500 and $38K (minus the 27K from you account) at 7% is $2660. Of course that would be yearly until you retire. If you monthly house payment minus interest and taxes is $1500 that would be $18K in a year. Depending on the payback to TSP per month do you have more money in your pocket to reinvest. This would be money that should be invested and not used as additional income. It sounds good but you have to do the math long term and short term.
    May the force be with us.

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  9. #5

    Default Re: General Purpose Loan to pay-off mortgage??

    You are smart to think about paying mortgage off by retirement time. I like the option of just paying extra principal each month as this allows you flexibility in the event of a major financial problem, etc. Stuff happens ya know! Results vary in the TSP but you should make more there than the interest you would pay on the mortgage. If you decide to look at the refinance option there are no closing cost refinances available if you look hard or have a VA loan. Let us know what you decide and how it works out so us TSP'rs can learn!

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  11. #6

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    Default Re: General Purpose Loan to pay-off mortgage??

    Quote Originally Posted by wetradio View Post
    It seems that what money I can access isn't going to be as valuable in the coming years
    This would also benefit you if you have a mortgage payment.

    Call around to big banks, small banks, credit unions and see who has the best offer. Ideally you'd want a no-cost refinance but they are not easy to find.

    There's a thread here where everyone talks about how taking social security at 62 is "the way" and it might be for them, but I think in this case you'd be better served delaying SS (retirement) and making catch up contributions to TSP along the way. Retiring with less than $100k in TSP is doable, but very difficult (health care, house repairs, new auto somewhere down the line, taxes that never go down....).

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