401k loan to pay mortgage down

[tooleman694]

Wondering what you all think of this idea.

I have an FHA loan and PMI falls off after 5 years or when I hit 78 percent LTV whichever come last.

But when my loan is 5 years old, I will be about 15k short to hitting 78 percent so ill have to pay another 30 months worth of PMI.

I was thinking about taking a 401k loan for 15k when I hit 5 years and paying down the mortgage. Then use what I would have been paying for PMI to pay off the 401k loan.

I would not be saving any money, but id be saving money in interest for the life of the loan for that 15k plus the loan would pay for itself with the PMI savings.

What are your thoughts.

[BrianB_The_Loan_Professor]

Sounds like a plan and you will save money as you will simply be paying yourself back  

in the end you will have the money back and no PMI for all of that time - plus a lower balance - if you are confident you will be there long enough to make this pencil out then I dont see a reason why you shouldnt make this move

B

[TimeToRecover]

One thing to consider is the amount of interest you will lose on your 401K.  Just remember an article I read that said many people don't consider the interest lost when they calculate a loan from their retirement.

[StaticRaven]

It's not just interest, but IIRC, when you take a loan out on your 401k, the money that you borrow is no longer invested with the rest of your fund, so you lose any potential gains you might have made off those funds (15K in your case).

Not telling you not to do it, since this is a situation I think it would be worthwhile, just pointing out that it's more than interest you lose out on.

[DallasLoanGuy]

is pmi tax deductible for you?

[Ridewithme38]

The interesting thing about a 401K loan is...While you DO lose the investment gains you may have made on that money....The interest you pay on the 401K loan actually goes INTO the 401k.....

So, IMO, check the gains on your 401k investments...if that percentage is lower then the interest you will pay on the 401K loan....you will actually profit by taking the loan

[tooleman694]

Yes I can write off PMI, but I have to pay 3k a year into thin air to take the write off.. I would think paying an extra 3k a year to myself, instead of the deduction would net me more results..

Im sure the money im making in the 401k is higher then the interest id be paying myself.. But you never know.. for all I know the market could come down and that 15k I have invested in a loan might be safe..

[spikedup]

What hasn't been mentioned yet is the risk of losing all that 401k money. If for some reason you can't make the payments on the house and it gets foreclosed or goes to short sale, the 401k money is gone. Also the 401k money is safe in terms of bankruptcy. Just a thought.